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Explained: Unpacking the telecom reforms package

The Cabinet has approved a set of nine measures to address the issues faced by the telecom sector. A look at the reforms, an the challenges still ahead.

Union Ministers Ashwini Vaishnaw, Anurag Thakur brief the press. (Express Photo: Anil Sharma)

On September 15, the Union Cabinet approved a set of nine structural and procedural reforms to address the short-term liquidity needs as well as long-term issues of telecom companies. While the companies have welcomed the move, analysts are sceptical about the survival of a three-player telecom market unless there is a substantive rise in tariffs.

How will the reforms impact telcos?

Among all the measures, one of the most crucial and timely, which analysts say will provide short-term relief to debt-laden Vodafone Idea and Bharti Airtel, is a four-year moratorium on payment of dues arising due to the Supreme Court’s September 1, 2020 judgment on adjusted gross revenue (AGR). Another four-year moratorium on payment of spectrum purchased in past auctions, barring the 2021 auction, is also likely to provide relief.

Although the government will charge interest if the companies opt for the moratorium, analysts feel it could provide the telecom sector a breather of roughly Rs 45,000 crore per year for the next four years.

Measures such as streamlining of the auction calendar and removal of the spectrum usage charges (SUC) from auctions, too, are likely to bring down the dues outgo, while helping telcos plan their auction purchase. For the telcos to benefit from the reduced SUC, however, they will have to buy more spectrum in upcoming auctions, analysts said.

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How far can the measures be expected to help save Vodafone Idea’s market?

Although the government insists these measures would be for everyone, it is Vodafone Idea, with a net debt of close to Rs 1.9 lakh crore, that will benefit the most in the near future, experts said. The company, however, will need to raise adequate capital urgently, and go for a sizeable hike in 4G tariff for prepaid customers.

“The onus now shifts to the company to successfully complete its long-delayed capital raise, accelerate network investments, stem its subscriber losses, and (eventually) raise ARPUs (average revenue per user), all of which come with their fair share of challenges and uncertainties,” Citi Research said in a note.


Vodafone Idea will also have to fend off increased competition from Reliance Jio Infocomm and Bharti Airtel, which have more breathing space and manageable debt situation. “The option of moratorium is open for all. While Vodafone Idea focuses on revival, which is a possibility now, Reliance Jio and Bharti Airtel can go back to being more aggressive whether it is in terms of offering better network and services or extremely competitive tariffs and add-ons,” an industry veteran said.

How do the reforms impact the government’s finances?

The government has insisted that since all the moratorium offerings are done with net present value protected, it will face some revenue loss in the next four financial years even if two of the three private players opt for it.

For the current financial year, the government had estimated receipts of Rs 53,987 crore from spectrum usage charges, licence fee levies and other levies. The bulk of this, however, will have to be forgone for four financial years once the telcos opt for the moratorium.


At the end of the moratorium period, the government will have provide an option to the telecom player to pay the interest arising out of the deferment of payment by way of equity, and at the option of the government, to convert the due into equity. This, experts said, will be a challenge for the government to offload the stake later if market conditions do not improve.

But how did the financial condition of the telcos deteriorate?

It started by and large with the differing legal interpretation of AGR. To understand this, one must go back to 1999, when the government decided to shift from a fixed to a revenue-sharing model for the telecom sector. Telecom players would pay a certain percentage of their AGR, earned from telecom and non-telecom revenues, as licence and spectrum fee.

The easing of this regulatory environment led to a number of players entering the fray. At its highest, India had more than 14 national and regional telecom service providers.

In 2003, the Department of Telecom (DoT) raised the demand for AGR payments. It said all revenue earned by telcos as dividend from subsidiaries, interest on short-term investments, money deducted as trader discounts, discount for calls and others, which was over and above the revenue from telecom services, would be included for calculation of AGR.

The telcos approached the Telecom Disputes Settlement Appellate Tribunal (TDSAT), which in July 2006 ruled the matter must be sent back to the regulator TRAI for fresh consultation. TDSAT rejected the government’s contention, and the Centre moved the Supreme Court. While the case was still ongoing, in 2012, the Supreme Court cancelled 122 telecom licences in the 2G scam case. This prompted a revamp, with spectrum now allocated through auctions.

A rickshaw puller speaks on his mobile phone as he waits for customers in front of advertisement billboards belonging to telecom companies in Kolkata in 2014 (Reuters Photo: Rupak De Chowdhuri, File)

What was the Supreme Court verdict?

In 2019, the Supreme Court gave the first verdict in the case, holding that DoT’s definition of AGR was the correct one, and that the telcos must pay the AGR, interest and penalty on non-payment.

The judgment cane when the telecom sector was reeling under stress due to intense competition from Reliance Jio Infocomm, which made its entry in 2016. Jio Infocom was left with dues of more than Rs 58,000 crore, which has now ballooned to Rs 62,000 crore, while Airtel had to pay more than Rs 43,000 crore as AGR dues when the judgment was pronounced in 2019. Though both players have paid some of this to the DoT, they still need to raise funds to pay the rest either now, or four years later if they opt for the moratorium.


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First published on: 18-09-2021 at 03:30:52 am
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