In recent years, never has a compelling mix of circumstances that included a worldwide pandemic due to the spread of the novel Coronavirus (Covid-19) since March 2020, shaped a set of major policies for the telecom sector, as the latest three-fold reform package unveiled by the Government of India.

Cleared by the Union Cabinet chaired by the Prime Minister Narendra Modi on September 15 and announced by the new Telecom Minister, Ashwini Vaishnaw, the telecom relief has come amid mixed analytical responses, ranging from a ‘just-in-time helpline’ to an overly debt-ridden industry, a ‘shot in the arm’ for telecom firms, to being a ‘temporary balm’ for some telecom service providers (TSP) deeply in the red.

The PIB release detailing the reforms package, first and foremost acknowledges the “outstanding performance” of the Telecom sector in meeting the Covid-19 challenges, whether it be meeting the needs of online education, work-from-home, interpersonal connect through social media, virtual conferences, webinars etc., all occasioned by a pandemic-struck economy entangled in sudden lockdowns.

This backdrop has made the role of TSPs’ more significant, even as the telecom sector’s contribution to the country’s socio-economic development has enlarged amid an explosive growth in mobile telephony and broadband spread.

The pandemic crisis enhancing the economic role of the TSPs’, the huge debt burden of some of the key market players-, like of Vodafone Idea (VI) arising from Supreme Court order on Adjusted Gross Revenue (AGR) dues and virtually driving VI to the brink of bankruptcy-, the Union government’s intent to avert a complete collapse of the sector and its consequential incalculable loss to the GDP, besides the Narendra Modi Government’s keenness to tone up its performance, all appear to have contributed to this basket of reform measures, perhaps the most consequential since the Union Government’s ‘1999 New Telecom Policy’.

The reform package has three categories: Structural reforms, Procedural reforms and third, ‘Addressing Liquidity requirements of Telecom Service Providers (TSP)’, as per the official statement. “The above will be applicable to all TSPs’, and will provide relief by easing liquidity and cash flow. This will also help various banks having substantial exposure to the Telecom sector,” the release said, blunting anticipated criticisms of the policy aiding ‘crony capitalism’.

BIGGEST TAKEAWAY

From the TSPs’ view, struggling to repay staggering amounts including spectrum-related payments to the Government in the wake of the Supreme Court order on the AGR issue, the biggest takeaway from the reform package, analysts say, is the Cabinet nod for a four-year moratorium/deferment (from October 1, 2021), on “all annual payments of dues arising out of the AGR judgment, while, protecting the net present value of the due payments.”

Payments due from spectrum purchases in past auctions (excluding the auction of 2021), for four years, option to TSPs’ to pay the interest amount arising out of the deferment by way of equity and also an option to the Government to convert the “amount pertaining to the deferred payment” to equity at the end of the moratorium period, are part of the measures to ease TSPs’ liquidity crunch and cash-flow crisis.

Analyst’s term this is virtually a lifeline to Vodafone Idea in deep financial crisis, with the company’s cash-flow choked by the AGR pay-out requirements. India’s top Economic and Financial Daily, ‘Business Standard’, quoting Goldman Sachs estimates, said, “thanks to the moratorium, the company will not have to pay over Rs.16,200 Crore annually as AGR and spectrum payments for four years, thereby improving its cash flow significantly.” But it may still have to go for a tariff hike and also need an investor to pump in Rs.25,000 Crore, it said.

Another significant takeaway from the package, say analysts, is the exclusion of non-telecom revenue from the ‘definition of AGR’. This has been the plea of the telecom companies for quite some time, since the revenue-sharing model ushered in by the 1999 New Telecom Policy’, to part with only earnings generated from their core telecom services business alone. This issue had been a bone of contention for long and has now been firmly decided by the latest 2021 reforms package.

The Union Government has also rationalized ‘Bank Guarantees (BG)’, doing away with multiple BGs’ for different license service areas, and abolishing BGs’ in future auctions for Spectrum. The tenure of holding a spectrum (radio waves) has also been increased from 20 years to 30 years, among others. “There will be no ‘Spectrum Usage Charge (SUC) in future Spectrum auctions. The interest rate on delayed payments of License Fee (LF) and SUC have also been rationalized. Penalty and Interest on penalty also goes.

To encourage fresh investments into the sector, the Government has also hiked the quantum of FDI (Foreign Direct Investment) under the automatic route for the Telecom sector from present 49 per cent to 100 per cent, subject to other safeguards. Among the ‘Procedural Reforms’, the Government has eased the norms for giving clearances for putting up Telecom Towers, the release said.

Thus, the package as a whole looks pragmatic, seeking to breath fresh life into a moribund scenario, given the stiff competition among TSPs’, high price of Spectrum charged by the Telecom Regulatory Authority of India (TRAI) and the widespread low tariffs which have brought millions of new customers into mobile telephony. So, somewhere the Government has to take a call in the larger interests of the people’s welfare, given the huge economic and social gains from connectivity to even remotest parts.

While elements of the package including 100 per cent FDI under the ‘automatic route’ could make it possible for players like Vodafone to find a new global partner who would be able to bring in the much-needed fresh investments into the Telecom sector, not all analysts see the basket as all-pink.

The more critical of the analysts feel that the package is at best a ‘temporary balm’ for players in unenviably illiquid position, as all the reliefs and concessions announced will apply prospectively and not retrospectively. Abhishek Sinha, an Assistant Professor at the School of Law, UPES, writing in the ‘Bar & Bench’, a top legal website, is sceptical whether these measures “will resolve the present cash flow issues being faced by some players in the Industry like VI.”

Clarity at last in the “definition of AGR” was welcome, but Prof. Sinha points out that the ‘transformational reforms’ announced have come almost after a year “of Press Note 3, which introduced prior approval for FDI from countries that share a land border with India, like China.” “Only time will tell the effectiveness of these reforms to deal with the present issues being faced by some of the telecom players,” he says, adding, “to bear and enjoy the fruits of tomorrow, the telecom players must survive today and also exist tomorrow.”

Nonetheless, in a deeply uncertain scenario where some action is better than no action, the 2021 reforms package has raised hopes for a demoralized telecom sector of late.