The several new policy changes, all prospective, will largely help new players
The government’s telecom relief package doesn’t really throw Vodafone-Idea a lifeline; all it could do is help ease the beleaguered telco’s cash-flows for a short period. The telco can now start clearing its AGR (Adjusted Gross Revenues) dues after four years, subject, of course, to an interest payment. Spectrum payments, too, can be deferred for four more years; it was due to pay Rs 16,000 crore during FY23. The cash-flow relief to the telco, across four years, is around Rs 88,000 crore. Ahead of Wednesday’s announcement and ahead of any tariff hikes, analysts estimate Voda-Idea’s annualised shortfall in cash-flows at a minimum of Rs 23,000 crore.
Whether the breather is adequate to salvage Voda-Idea’s balance-sheet, over-burdened by debt, is a different question altogether. The telco’s total dues to the department of telecommunications (DoT) stands at close to Rs 1.7 lakh crore; the AGR dues are a colossal Rs 58,000 crore. The telco’s cash-flows are currently so weak, it can barely cover its interest payments of around Rs 5,000 crore in a quarter. Post the moratorium relief, this could be slightly smaller—but that is about it. Given it is losing customers every day, and that the ARPUs are falling, the company would need much more policy relief if it is to see a turnaround in its fortunes. Unless tariffs increase meaningfully, the loss of customers is arrested, servicing interest itself is going to be a challenge. Investments in the network look unlikely.
Since the changes to the telecom policy are all prospective, they will largely benefit players whose legacy dues are either small, or negligible. The change in the definition of AGR—non-telecom revenues are no longer included—was long overdue; had this been done a decade ago, players like Vodafone would have been in a better position. However, the government has always been more concerned about its revenues than the health of the players. While spectrum usage charges (SUC) have been waived for future, operators will need to pay for existing spectrum. Again, this benefits newer entrants. Also, expect disputes because it is not easy to technically segregate revenues coming from different bands.
No penalties will be charged if SUC and licence payments are delayed and neither will the government demand bank guarantees for future auctions. These have burdened operators in the past. However, there is no mention of a reduction in licence fee from the current 8% of AGR; Trai had recommended lowering this to 6%. Serious reform requires the government to lower spectrum prices meaningfully; telcos have been paying exorbitant prices for airwaves. Increasing the lease period for auctioned spectrum from the current 20 years to 30 years and allowing spectrum to be shared and also surrendered for a fee are welcome measures, but can’t be considered game-changing. Allowing 100% FDI (foreign direct investment) in the sector, via the automatic route, is a minor tweak as is the announcement of an auction calendar.
While the Centre has taken the utmost care to protect its revenues, one hopes the industry will not go the way of a duopoly because consumers will be the biggest losers. Over the years, India’s telecom policies have hurt innumerable companies. As Deutsche Bank analysts wrote after the Supreme Court disallowed any re-visiting of telecom operators’ AGR dues to the government, “this is the latest blow to operators in the most painful market we have come across to operate a telecom in. A long history of extracting as much as possible from the sector has left a legacy of repeated business failures…”.