Cabinet approves 4-year moratorium on payment of all govt dues by telcos

Cabinet rationalises AGR definition, excludes non-telecom revenue of telcos from payment of statutory levies, allows 100% automatic FDI in telecom sector with safeguards

In big bang reforms, the Union Cabinet on Wednesday approved a relief package for the telecom sector that includes a four-year moratorium on payment of statutory dues by telecom companies as well as allowing 100% foreign investment through the automatic route.

Briefing reporters on the decisions taken by the Cabinet, Telecom Minister Ashwini Vaishnaw said nine structural reforms for the telecom sector were approved.

The definition of AGR, which had been a major reason for the stress in the sector, has been rationalised by excluding non-telecom revenue of telecom companies.

AGR refers to revenues that are considered for payment of statutory dues.

"PM Modi took a bold decision over AGR (adjusted gross revenue) today. A decision has been taken to rationalise the definition of AGR. All non-telecom revenue will be taken out of AGR. There was a regime of heavy interest, penalty & interest on penalty on payment of license fees, spectrum user charges and all kinds of charges. It has been rationalised today. Annual compounding (of interest) will be done instead of monthly compounding. A reasonable interest rate of MCLR + 2% interest rate has been offered and the penalty has been completely scrapped. This will pave way for large-scale investments in the telecom sector. Investment means employment - more the investment, more the employment," said Vaishnaw at a press briefing in New Delhi.

"For future auctions, duration of spectrum will be 30 years instead of 20 years. Also if someone takes spectrum & business conditions/technology changes then after a lock-in period of 10 years it can be surrendered by paying spectrum charge. Spectrum sharing is also being completely allowed, it has been made completely free," added Vaishnaw.

The minister said that 100 per cent FDI (Foreign Direct Investment) in telecom via the automatic route was approved by the Cabinet.

Among the measures approved were a four-year moratorium on unpaid dues, AGR and spectrum dues, he said.

These measures are expected to ease the cash flow issues being faced by some players in the industry and provide relief to companies such as Vodafone Idea that have to pay thousands of crores of rupees in unprovisioned past statutory dues.

“The relief package announced by the Government is a welcome step towards strengthening the industry and ensuring survival of players to maintain healthy competition for the benefit of the customers. The removal of non-telecom revenues from the definition of AGR and the removal of penalty is a much needed change that has been brought in. This extra burden has hurt the telecom industry in the past and will now pave the way for telecom players to make higher capital investments," said Sameer Chugh, Partner, Cyril Amarchand Mangaldas.

The relief package comes six weeks after billionaire Kumar Mangalam Birla resigned as chairman of beleaguered Vodafone Idea Ltd (VIL) on August 4.

VIL's August 4 intimation about the top-level changes had come on a day stock exchanges seeking clarification from the company over the widely reported June 7 letter of Birla to the Cabinet Secretary offering his stake in Vodafone Idea to the government or any company approved by the government for free.

VIL, which was created from the merger of British telecom giant Vodafone's India unit and Birla's Idea Cellular Ltd, has to pay about Rs 50,399.63 crore in statutory dues dating back over past many years.

The package, which initially was widely expected to be taken up by the Cabinet last week, will offer a breather to the three private player industry, at a time when VIL is confronting existential crisis.

Vodafone Idea, in its annual report, has flagged the industry's "unsustainable financial duress" and hoped that the government would provide the necessary support to address "all structural issues" faced by the sector.

The total gross debt (excluding lease liabilities and including interest accrued but not due) as of June 30, 2021 of VIL stood at Rs 1,91,590 crore, comprising of deferred spectrum payment obligations of Rs 1,06,010 crore and adjusted gross revenue (AGR) liability of Rs 62,180 crore that are due to the government.

Industry analysts too have been sounding an alarm over the risks of the Indian telecom market turning into a duopoly.

Structural Reforms

1) Rationalization of Adjusted Gross Revenue:  Non-telecom revenue will be excluded on prospective basis from the definition of AGR.

2) Bank Guarantees (BGs) rationalized: Huge reduction in BG requirements (80%) against License Fee (LF) and other similar Levies. No requirements for multiple BGs in different Licenced Service Areas (LSAs) regions in the country. Instead, One BG will be enough.

3) Interest rates rationalized/ Penalties removed: From 1st October, 2021, Delayed payments of License Fee (LF)/Spectrum Usage Charge (SUC) will attract interest rate of SBI’s MCLR plus 2% instead of MCLR plus 4%; interest compounded annually instead of monthly; penalty and interest on penalty removed.

4) For Auctions held henceforth, no BGs will be required to secure instalment payments. Industry has matured and the past practice of BG is no longer required. 

5) Spectrum Tenure: In future Auctions, tenure of spectrum increased from 20 to 30 years.

6) Surrender of spectrum will be permitted after 10 years for spectrum acquired in the future auctions.

7) No Spectrum Usage Charge (SUC) for spectrum acquired in future spectrum auctions.

8)Spectrum sharing encouraged- additional SUC of 0.5% for spectrum sharing removed.

9) To encourage investment, 100% Foreign Direct Investment (FDI) under automatic route permitted in Telecom Sector. All safeguards will apply.

Procedural Reforms

1) Auction calendar fixed - Spectrum auctions to be normally held in the last quarter of every financial year.

2)Ease of doing business promoted - cumbersome requirement of licenses under 1953 Customs Notification for wireless equipment removed. Replaced with self-declaration.

3) Know Your Customers (KYC) reforms: Self-KYC (App based) permitted. E-KYC rate revised to only One Rupee. Shifting from Prepaid to Post-paid and vice-versa will not require fresh KYC.

4) Paper Customer Acquisition Forms (CAF) will be replaced by digital storage of data. Nearly 300-400 crore paper CAFs lying in various warehouses of TSPs will not be required. Warehouse audit of CAF will not be required.

5) SACFA clearance for telecom towers eased. DOT will accept data on a portal based on self-declaration basis.  Portals of other Agencies (such as Civil Aviation) will be linked with DOT Portal.

Addressing Liquidity requirements of Telecom Service Providers

The Cabinet approved the following for all the Telecom Service Providers (TSPs):

1) Moratorium/Deferment of upto four years in annual payments of dues arising out of the AGR judgement, with however,  by protecting the Net Present Value (NPV) of the due amounts being protected.

2) Moratorium/Deferment on due payments of spectrum purchased in past auctions (excluding the auction of 2021) for upto four years with NPV protected at the interest rate stipulated in the respective auctions.

3) Option to the TSPs to pay the interest amount arising due to the said deferment of payment by way of equity.

4) At the option of the Government, to convert the due amount pertaining to the said deferred payment by way of equity at the end of the Moratorium/Deferment period, guidelines for which will be finalized by the Ministry of Finance.