Government approves a four-year moratorium on AGR and spectrum dues, providing relief to telecom businesses

NEW DELHI: As part of sweeping reforms to improve the debt-laden sector’s health and ensure the market has at least three private players, the government announced a four-year moratorium on adjusted gross revenue (AGR) and spectrum payments, approved redefining AGR to exclude “non-telecom” items, and cut the spectrum usage charge (SUC) to zero — both prospectively — on Wednesday. The value of telecom stocks increased.

Other essential choices include allowing operators to “pay the interest amount arising due to the stated delay of payment through equity,” according to a statement released by the government on Wednesday. At the end of the moratorium period, the Centre has the option of converting operators’ deferred payment dues into equity, with guidelines to be finalized by the ministry of finance. According to the government, carriers will utilize spectrum purchased in auctions for 30 years instead of 20 years.

It permitted telecoms to pay a surrender value for unused airwaves after the first ten years and eliminate the 0.5 per cent additional SUC that operators had to pay for sharing frequencies. The government has also decreased the number of bank guarantees that operators must provide to settle their debts. It lowered the interest rate on late licence fees and SUC payments to SBI’s marginal cost of funds based lending rate (MCLR) + 2% from MCLR plus 4% while eliminating the penalty and penalty interest components.

To promote foreign investment, the government increased the percentage of foreign direct investment (FDI) authorized in the industry to 100% under the automatic route, up from the current 49 per cent. At a press conference following the cabinet meeting, telecom minister Ashwini Vaishnaw noted that this is subject to protections such as restrictions on investments by firms situated in countries with a border with India.

While the package is intended to assist the industry with more than Rs 8 lakh crore in debt, it would help cash-strapped Vodafone Idea NSE 18.44 per cent stay afloat in a market where Reliance Jio Infocomm and Bharti Airtel NSE -0.06 per cent are the other two private companies. The fourth telecom in India is the state-owned Bharat Sanchar Nigam Ltd.

“Competition is critical for the telecom business to provide customers with options,” Vaishnaw remarked. “The modifications are intended to promote healthy competition and attract new participants… When we auction 5G, there will be further reforms so that more firms may enter the market.”

He claimed that the reforms are income neutral for the government because they apply to the entire industry rather than a single company. Telecom businesses currently amid insolvency proceedings would need to seek clarification from the National Company Law Tribunal, he added (NCLT).

Vodafone Idea, a joint venture between Vodafone Group PLC in the United Kingdom and Aditya Birla Group (ABG) in India, surged 7% intraday before closing 2.8 per cent higher at Rs 8.93 on the Bombay Stock Exchange on Wednesday. Bharti Airtel hit an all-time high of Rs 734.95 before closing up 4.5 per cent at Rs 725.55. The parent company of telecom industry leader Jio, Reliance Industries, closed 0.5 per cent higher at Rs 2,378.95.

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