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India’s struggling telcos welcome government’s latest measures on AGR and foreign investments

The Union Cabinet approved changes to existing requirements including a moratorium option for struggling telecom operators.

The government on September 15 announced measures that the Union Cabinet had decided to take to address the telecom industry’s financial troubles. “All non-telecom revenue will be removed from the definition of Adjusted Gross Revenue,” Information Technology Minister Ashwini Vaishnaw said in a press conference. Additionally, all telecom foreign investment can now happen through a 100% automatic route, with the caveat that investment from neighbouring countries (read: China) will be subject to review under Press Note 3 of 2020, which restricted such FDI inflows. While the AGR definition change is only applicable starting now, the government announced that telecom operators can avail of a four-year moratorium on payments to existing dues — provided that they pay on accrued interest over the period.

The moves may make it easier for Vodafone Idea to obtain investments from institutional investors, who have been hesitant to bet on the struggling telco. But this essentially just buys some time for Vi, and the full weight of its past dues will largely continue. Airtel praised the changes in a press statement issued shortly after the government’s announcement. But Gopal Vittal, MD & CEO (India and South Asia), at Airtel added, “More needs to be done, however, towards a sustainable tariff regime to ensure the industry gets a fair return. This will in turn allow it continue investing in new technologies and innovation to bring world-class services to customers.” The Cellular Operators Association of India (COAI) said, “These steps would go a long way in relieving the financial stress the sector is facing, boosting investments, encouraging healthy competition and in offering choice to customers. The announcement is aligned with the telecom industry’s long-standing asks.”

List of changes approved by cabinet

Here’s the full list of changes that the government announced for the telecom sector:

Structural changes

  1. Rationalisation of Adjusted Gross Revenue: Non-telecom revenue will be excluded on a prospective basis from the definition of AGR, the government said. This could allow telecom operators to exempt excess taxation on things like device subsidies (like JioPhone), which currently fall under the definition of AGR.
  2. Bank Guarantees (BGs) rationalised: Bank guarantee requirements have been reduced by 80% against License Fee (LF) and other similar levies, making life easier for banks underwriting telecom operators’ operating expenses. “No requirements for multiple BGs in different Licenced Service Areas (LSAs) regions in the country” will be in place, the government said. “Instead, One BG will be enough. […] For auctions held henceforth, no BGs will be required to secure installment payments. Industry has matured and the past practice of BG is no longer required.”
  3. Interest rates rationalised, penalties removed: From October 1, delayed payments of License Fee (LF)/Spectrum Usage Charge (SUC) will attract an interest rate of SBI’s Marginal Cost of Funds based Lending Rate (the minimum rate at which a bank is allowed to lend) plus 2% instead of MCLR; plus 4% interest will compound annually instead of on a monthly basis, and penalty and interest on penalty payments will be removed.
  4. Spectrum tenure: In future auctions, the tenure of spectrum allotted to telecom operators will be increased from 20 to 30 years. The surrender of spectrum will be permitted after 10 years for spectrum acquired in future auctions. No Spectrum Usage Charge (SUC) will be levied for spectrum acquired in future spectrum auctions. An additional SUC of 0.5% for spectrum sharing has been removed.
  5. 100% FDI through automatic route: To encourage investment, 100% Foreign Direct Investment (FDI) under automatic route will be permitted in the telecom sector, the government said.

Procedural changes

  1. Auction calendar fixed: Spectrum auctions will normally be held in the last quarter of every financial year, the government announced, saying that this timeline would give telcos some certainty on when to prepare for auctions.
  2. Customs amendment: The “cumbersome requirement of licenses under 1953 Customs Notification for wireless equipment” has been removed, the government said. Telcos can now obtain such equipment with a self-declaration.
  3. e-KYC: App-based KYC has been permitted, and telcos will not be required to maintain paper records of customer acquisition forms (CAFs), Vaishnaw said. “Shifting from Prepaid to Post-paid and vice-versa will not require fresh KYC,” the government said.
  4. Clearance for telecom towers eased: DoT will accept data on a portal based on a self-declaration basis for the construction of telecom towers. Portals of other Agencies (such as Civil Aviation) will be linked with the DoT Portal.

Addressing telcos’ liquidity requirements

  1. AGR, spectrum moratorium: There will be a moratorium on AGR payments, with the accruing interest caveat described above. Spectrum purchases will also be eligible for a similar deferment, except for airwaves bought in 2021.
  2. Payment by equity: There will be an option for telcos to pay the interest amount arising due to the moratorium by way of equity. The government will also have the option to convert dues into equity, for which the Ministry of Finance will issue guidelines.

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