The telecom sector has been under immense pressure for the longest time. The relief package from the government is all that the telcos had their eyes on. Finally, the cabinet announced reforms that will bring in new investment and reduce the debt burden for the telecom industry.
Major Reforms
100% foreign direct investment (FDI) permitted to the telecom sector, which will encourage investment.
Moratorium of up to four years on AGR dues and spectrum payments earlier.
Non-telecom revenue excluded from the definition of adjusted gross revenue (AGR).
Penalty and interest on a penalty have been removed.
Tenure of the spectrum has been increased to 30 from 20 years in future auctions.
Telecom Minister’s Take
Union Telecom Minister Ashwini Vaishnaw said that the cabinet has allowed a four-year moratorium on all dues that telecom operators have to pay to the government. This includes annual payments of dues arising out of the AGR judgment and spectrum purchased in past auctions, excluding the March 2021 auction.
For the uninitiated, AGR refers to the revenue that is considered for payment of statutory dues. Companies that will avail of the moratorium will have to pay some interest. The moratorium will begin from October 1 onwards.
Motive Ahead..
The government is aiming to boost the penetration of future telecom connectivity in the country. The motive is to boost 4G penetration, infuse liquidity and create an environment to enable 5G networks in the near future. Another benefit from this reform package directly helps the banking sector. It will be a relief for the banks too, as it helps in stabilising and reducing the non-performing assets in the sector. Banks’ exposure to the telecom sector is Rs 1 lakh crore.
Telcos Benefit
The relief package will help the company conserve cash and will improve the probability of repayment for the next 3-4 years. A sustainable tariff regime will help the industry to invest in new technologies and innovation. Additionally, the industry will have an annual cash flow breather of about Rs 45,000 crore. This will bring major relief to the balance sheets of the cash-starved sector.
Future Ahead…
The relief package will majorly benefit Vodafone Idea as it will take care of its cash flow requirements. About 75-80% of their requirements will be taken care of by the package. It is a short-term relief but a positive one for Vodafone. Meanwhile, Bharti Airtel had already raised sufficient money via the rights issue. Therefore, the government’s support for Vodafone came at the right time, saving the industry from becoming a two-player market.
