Telecom Sector Reforms

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    • Recently, the Union Cabinet approved a relief package for the telecom sector.
      • This  includes a four-year moratorium on payment of statutory dues by telecom companies as well as allowing 100% foreign investment through the automatic route.

    Key Points

    • Four-year moratorium on payment of statutory dues by telecom companies, both AGR and spectrum charges.
    • Definition of AGR has been rationalised by excluding non-telecom revenue of telecom companies.
    • 100 percent FDI (foreign direct investment) in telecom via the automatic route has been approved.
    • The regime of heavy interest, penalty and interest on penalty on payment of licence fees, spectrum charges and all kinds of charges has been rationalised .
    • The relief package for the telecom sector has offered the prospect of an annual cash flow breather of an estimated Rs 45,000 crore to the fund-starved industry.

     Image Courtesy: IE

    Brief History of AGR

    • 1994: The telecom sector was liberalised under the National Telecom Policy, 1994 after which licenses were issued to companies in return for a fixed license fee. 
    • 1999: To provide relief from the steep fixed license fee, the government gave an option to the licensees to migrate to the revenue sharing fee model.
      • Under this, mobile telephone operators were required to share a percentage of their AGR with the government as annual license fee (LF) and spectrum usage charges (SUC). 
      • License agreements between the Department of Telecommunications (DoT) and the telecom companies define the gross revenues of the latter. 
      • AGR is then computed after allowing for certain deductions spelt out in these license agreements. 
      • The LF and SUC were set at 8 percent and between 3-5 percent of AGR respectively, based on the agreement.
      • The dispute between DoT and the mobile operators was mainly on the definition of AGR. 
      • The DoT argued that AGR includes all revenues (before discounts) from both telecom and non-telecom services. 
      • The companies claimed that AGR should comprise just the revenue accrued from core services and not dividend, interest income or profit on sale of any investment or fixed assets.
    • 2005: Cellular Operators Association of India (COAI) challenged the government’s definition for AGR calculation.
    • 2015: The TDSAT (Telecom Disputes Settlement and Appellate Tribunal) stayed the case in favour of telecom companies and held that AGR includes all receipts except capital receipts and revenue from non-core sources such as rent, profit on the sale of fixed assets, dividend, interest and miscellaneous income.
    • 2019: Setting aside TDSAT’s order, the Supreme Court on October 24, 2019 upheld the definition of AGR as stipulated by the DoT.

    Structural Reforms

    • Rationalization of Adjusted Gross Revenue: Non-telecom revenue will be excluded on prospective basis from the definition of AGR.
    • Bank Guarantees (BGs) rationalized: Huge reduction in BG requirements (80%) against License Fee (LF) and other similar Levies. No requirements for multiple BGs in different Licenced Service Areas (LSAs) regions in the country. Instead, One BG will be enough.
    • Interest rates rationalized/ Penalties removed: From 1st October, 2021, Delayed payments of License Fee (LF)/Spectrum Usage Charge (SUC) will attract interest rate of SBI’s MCLR plus 2% instead of MCLR plus 4%; interest compounded annually instead of monthly; penalty and interest on penalty removed.
    • For Auctions held henceforth, no BGs will be required to secure instalment payments. Industry has matured and the past practice of BG is no longer required.
    • Spectrum Tenure: In future Auctions, tenure of spectrum increased from 20 to 30 years.
      • Surrender of spectrum will be permitted after 10 years for spectrum acquired in the future auctions.
      • No Spectrum Usage Charge (SUC) for spectrum acquired in future spectrum auctions.
    • Spectrum sharing encouraged: additional SUC of 0.5% for spectrum sharing removed.
    • FDI Reforms: To encourage investment, 100% Foreign Direct Investment (FDI) under automatic route permitted in Telecom Sector. All safeguards will apply.

     

    Procedural Reforms

    • Auction calendar fixed: Spectrum auctions to be normally held in the last quarter of every financial year.
    • Ease of doing business promoted: The cumbersome requirement of licenses under 1953 Customs Notification for wireless equipment removed. Replaced with self-declaration.
    • Know Your Customers (KYC) reforms: Self-KYC (App based) permitted. E-KYC rate revised to only One Rupee. Shifting from Prepaid to Post-paid and vice-versa will not require fresh KYC.

    Significance of Reforms

    • Investment & Employment: This will pave the way for large-scale investments in the telecom sector. Investment means employment – more the investment, more the employment.
    • Healthy Competition: It is a welcome step towards strengthening the industry and ensuring survival of players to maintain healthy competition for the benefit of the customers. 
    • Cash Flow & Relief: These measures are expected to ease the cash flow issues being faced by some players in the industry and provide relief to companies such as Vodafone Idea that have to pay thousands of crores of rupees in unprovisioned past statutory dues.
    • Reducing NPAs: The telecom package comes as a relief to the banks as it mitigates the imminent possibility of default by vulnerable operators. This would help in stabilising and reducing the non-performing assets in the sector.
    • Increased Repayments: The steps announced by the government will help the companies conserve cash and it will significantly improve the probability of repayment at least for the next 3-4 years.

    Way Ahead

    • The removal of non-telecom revenues from the definition of AGR and the removal of penalty is a much needed change that has been brought in. 
    • There is a need for the government’s intervention in setting sustainable telecom floor tariffs, as it has done in the civil aviation sector to protect competition.
    • More efforts are needed to address the significant losses in the balance sheets of a majority of the stakeholders.

    Source: IE