Cabinet Approves Telecom Relief Package, Telcos to Get 4-Year Moratorium on AGR Dues

On Wednesday, the union cabinet has finally approved the much-anticipated telecom relief package. The cabinet, led by PM Narendra Modi, has introduced 9 structural reforms and 5 process reforms for the sector. Apart from the 4-year moratorium for the telcos on AGR dues payments, the government has decided to restructure AGR to not include spectrum payments.

Huge Relief for the Telecom Sector in the Package

The telecom relief package, while beneficial for the whole sector, will prove a lifeline for Vodafone Idea. The struggling telco was counting on the government to introduce these changes.

“The reforms are deep and broad. They are structural. These reforms will bring in change today, tomorrow and in the future. I do not like to put a number on the package as it is revenue-neutral for the government,” the minister said. Incidentally, this has become a one-of-a-kind event; the government has never stepped in to save a bunch of private companies before.

Talking about the 4-year AGR moratorium first, should a company opt for it, it will start from October 1, 2021. However, the telco will have to pay an interest at MCLR+2%.  This means that telcos like Bharti Airtel and Vi will avail some relief with their immediate cash obligations reducing drastically.

Bank Guarantees have been a tough aspect of operations for telcos; the government has decided to reduce the same by 80% on License Fees. Moreover, now, the DoT will not ask for BGs for any spectrum payments.

The government has also announced that it will redefine AGR to exclude non-telecom items, to "rationalize" the payments. Furthermore, the government will also reduce the spectrum usage charges, and change the payment regime for the same. More importantly, for future spectrum sales, the government has scrapped SUC altogether.

Along with this, the government has increased the spectrum usage life to 30 years, from 20 years. In another relief,  the government will allow telcos to surrender spectrum after 10 years with surrender charges.

Further spectrum-related reforms include creating a spectrum auction calendar; Vaishnaw said that the government will hold auctions in the last quarter of each financial year.

Government Trying to Preserve Competition in Telecom Sector

The government will also allow the telcos to convert their dues to equity; the Finance Ministry will finalize the guidelines for the same in the coming days.

Telecom minister Ashwini Vaishnaw said that the sector needs healthy competition. "Competition is extremely important for telecom industry to offer choice to customers. This right has to be protected. The reforms are to ensure healthy competition and attract new players...there will be further reforms when we auction 5G so more players can enter the sector." He added, "understand the impact which is going to give a sustainable growth. Reforms are revenue neutral to government".

To boost the Make in India project, Vaishnaw said that the 4G and 5G core and RAN technology will be locally sourced. He added that similar equipment will form the part of BSNL's upcoming 4G deployment.

For infrastructure providers, the Cabinet simplified the tower setup process on the basis of self-approval. The government will integrate all the portals with the DoT to boost the ease of doing business. Furthermore, the government has also digitized the KYC process. What's more, if a customer wants to move to a prepaid connection via postpaid, they won't have to go through KYC again. Lastly, the government will amend the 1953 Customs Notifications so that vendors can import equipment faster.

The telecom relief package comes as a welcome, albeit unprecedented, surprise for the telecom sector. It should help solve the liquidity issues of many players, and give a boost to the overall innovation in the sector.