Revitalization of the telecom sector

9 The way is open for structural reforms; Great relief to Voda-Idea, Airtel

The Union Cabinet on Wednesday decided to allow 100 per cent foreign direct investment (FDI) in an automated way with a four-year moratorium on payment of arrears to telecom companies in financial crisis. This long awaited decision has come as a great relief to the telecom sector.

The empowerment of the telecom sector through a total of nine types of structural reforms was also welcomed by the industry. Therefore, the best response to the upcoming auction for 5G services is considered to be certain.

The arrears associated with the adjusted gross revenue (AGR) since 1999 on annual license fees and spectrum usage charges were a major financial strain for telecom companies. Union Telecom Minister Ashwini Vaishnav explicitly acknowledged this, redefining AGR, adding that spectrum usage charges were also being reduced, excluding companies from non-telecom ventures.

The Cabinet also took a decision to provide relief to telecom companies including Vodafone-Idea, Bharti Airtel and Reliance Communications, which have to deposit thousands of crores of rupees in the government’s coffers for the AGR arrears. Companies will not have to pay a single rupee for the next four years. Vaishnav said the government is confident that this will ease the regulatory burden on telecom service providers, encourage them to make new investments and safeguard the overall consumer interest while enhancing the quality of customer service.

Telecom companies taking advantage of the four-year deferral to pay AGR arrears will have to pay interest on the arrears for that period. However, the interest on spectrum usage arrears will be calculated on an annual compounding basis instead of the monthly compounding method. It is also expected to significantly reduce the interest burden.

Vodafone-Idea, which is on the verge of bankruptcy, will be revived by the government’s latest decision, say telecom experts. According to the Supreme Court ruling in 2020, Vodafone-Idea, Bharti Airtel and Reliance Communications will have to pay Rs 92,000 crore in arrears on license fees and another Rs 41,000 crore on spectrum usage charges. These companies, which are already facing stiff competition, were facing a capital shortage and the burden of arrears was life threatening. In July, Kumar Mangalam Birla, former chairman of Vodafone-Idea, wrote a letter to Cabinet Secretary Rajiv Gowda, suggesting that the central government should run his company.

How to help?

Telecom companies including Vodafone-Idea, Bharti Airtel and Reliance Communications will no longer have to pay a single rupee of AGR arrears to the government for the next four years. This will reduce the financial burden on them and create and nurture employment opportunities in the sector. Also, a healthy competition will be promoted, said Union Telecom Minister Ashwini Vaishnav.

Increase in foreign investment limits

The Cabinet also decided to increase the FDI limit in the telecom sector from 100 per cent to 100 per cent. This is expected to alleviate the capital crunch felt by companies in the sector through many foreign investors.

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