Relief for telecom sector! Govt okays measures to facilitate investments

It has also relaxed the spectrum holding limit for the telecom operators, according to an official spokesperson

The government has cleared the much-awaited relief measures for the debt-ridden telecom sector, providing operators the option of paying their spectrum instalments in a longer time frame and easing the spectrum holding limits.
 

The restructuring of deferred payment liabilities will increase the cash flow in the immediate time frame, whereas the relaxation of spectrum caps will facilitate the consolidation of telecom licensees and may encourage the participation in the future auctions, according to a government release.
 

The longer duration of deferred spectrum payments — 16 years, as against the current 10 years — is estimated to increase the cash flow of operators by Rs 550 billion.
 

The latest steps, approved by the Union Cabinet chaired by Prime Minister Narendra Modi on Wednesday, were based on the recommendations of an inter-ministerial group (IMG), formed in June last year. The IMG had recommended increasing the tenure of payment for spectrum to 16 years. On spectrum caps, the panel had asked the Department of Telecommunications (DoT) to take the opinion of the Telecom Regulatory Authority of India (Trai). In its opinion, Trai had recommended raising the 25 per cent overall spectrum holding limit to 35 per cent and also removing the cap of 50 per cent holding in the same band. Instead, the regulator had recommended having a cap of 50 per cent on the combined spectrum holding in the sub-1 gigahertz (GHz) bands (700, 800, and 900 megahertz, or MHz).

Though the industry welcomed the measures, it said systemic issues still remained unresolved. 

“The debt payment extension will only have a minimal benefit through cash flow relief, but total payments will increase. Systemic issues of the industry such as excessive taxes and levies of 30 per cent or more still remain unaddressed,” said Rajan S Mathews, director general, Cellular Operators Association of India.

The industry has been demanding a reduction in licence fees and spectrum charges. But, the IMG stayed away from suggesting any big-bang reforms. 

The relaxation in the 50 per cent cap will allow Reliance Jio to retain most of the airwaves in the 800 MHz band after the acquisition of Reliance Communications’ assets. Also, Vodafone and Idea Cellular will be able to retain most of their airwaves after their merger. The increase in overall cap to 35 per cent will help Bharti Airtel consolidate its spectrum holding across bands.

Regarding the longer tenure of spectrum instalments, the official statement said it was based on the principle that the net present value of the payment due was protected as per respective notice inviting applications for the auction of spectrum from 2012. “The total amount received will be higher by Rs 744.46 billion till 2034-35,” it said.

The telecom sector debt is mainly incurred on account of spectrum payments and other usage charges and levies. The entry of Reliance Jio in September 2016 had further compounded the problems of the industry as the new entrant offered cheap tariffs, forcing the incumbent operators to match the rates to retain customers. However, their profitability went for a toss, and most operators reported decreased revenues and squeezed margins.

“The next procedural change that the government should consider to further boost the telecom sector is easing the process of obtaining approval from the DoT,” said Niren Patel, partner, Khaitan & Co.

Dearness allowance hiked to 7%

In another key decision, the Cabinet increased the dearness allowance (DA) for 11 million central government employees and pensioners to 7 per cent, from 5 per cent, with effect from January 1, 2018.

“The Union Cabinet chaired by Prime Minister Narendra Modi has given its approval to release an additional instalment of DA to central government employees and dearness relief to pensioners from January 1, 2018, representing an increase of 2 per cent over the existing rate of 5 per cent of the basic pay/pension, to compensate for price rise,” an official statement said.

According to the statement, the hike will benefit about 4.8 million central government employees and 6 million pensioners.

With inputs from PTI