Telecom industry revival package: Telcos get cash flow boost as Cabinet clears relief package

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September 16, 2021 5:30 AM

While telecom industry veterans like Sunil Bharti Mittal and Mukesh Ambani welcomed the relief measures, analysts said apart from the cash flow relief component, companies would not benefit much as most of the measures are linked to future spectrum auctions.

The relief measures come into effect from October 1.The relief measures come into effect from October 1.

The Union Cabinet on Wednesday approved the much-awaited revival package for the telecom industry, which is a combination of cash flow relief for the financially stressed operators as well as long-term measures like redefinition of adjusted gross revenue (AGR) and scrapping of spectrum usage charge in future auctions.

The major part of the package, which provides immediate cash flow relief to the financially stretched Vodafone Idea, is that the payment of AGR dues has been deferred for four years with the net present value protected. Similarly, the deferred spectrum instalments, which operators pay for spectrum acquired in the past auctions, have also been deferred for four years. There was already a moratorium on it for FY21 and FY22, so adding that, operators have got a six-year moratorium.

The deferment of AGR and spectrum dues will provide cash flow relief to Vodafone Idea (VIL) to the tune of around Rs 88,000 crore for the four-year period. The company’s annual AGR instalment comes to around Rs 8,000 crore and that on spectrum is Rs 14,000 crore. Analysts said the measure surely gives VIL time to tide over its cash flow problems, but the real revival of the company would only happen if it is able to pump in funds and generate enough cash to invest in its networks and check subscriber churn.

While telecom industry veterans like Sunil Bharti Mittal and Mukesh Ambani welcomed the relief measures, analysts said apart from the cash flow relief component, companies would not benefit much as most of the measures are linked to future spectrum auctions.

The relief measures come into effect from October 1.

In case of deferment of dues, the operators have been given the option to pay the interest amount by way of equity, but it would be at the option of the government to convert the due amount pertaining to the deferred payment into equity at the end of the moratorium period. The government said guidelines regarding this would be finalised by the finance ministry.

Among the long-term measures, the one which would be most welcomed by the industry, would be the redefinition of AGR in a manner which clearly stipulates what revenues will go towards its calculation. The government said companies in future will need to pay the licence fee and SUC only on telecom revenues and not on non-telecom revenues like interest, dividends, capital gains, etc. However, since this will also be from a prospective date, it will not bring any immediate relief to the operators. The licence fee which currently stands at 8% of the AGR has not been changed, but since non-telecom revenues will be taken out, the amount companies pay as licence fee would slightly come down.

Among the other measures is rationalisation of bank guarantees, where in future there would be no requirements for multiple BGs in different licenced service areas and one BG will be enough. For future auctions, no BGs would be required.

Interest rates have been rationalised and penalties removed from October 1 for delayed payments of licence fee and SUC. These would attract interest rate of SBI’s MCLR plus 2% instead of MCLR plus 4% and interest would be compounded annually instead of monthly. Further, penalty and interest on penalty have been removed.

In future auctions, the tenure of spectrum has been increased from 20 to 30 years and after 10 years of acquiring spectrum, companies would have the option of surrendering it. However, since these measures would not bring any immediate relief to the operators.

Though the government has said SUC would be scrapped on spectrum in future auctions, it did not clarify how the segregation of revenues accruing from different bands would be done. In the past, DoT has failed to do such segregation because of which SUC reforms got stuck.

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