On 15th September, 2021, the Union Cabinet approved major reforms in the Telecom sector. According to the telecom minister, Ashwani Vaishnaw, the said reforms will have the effect of overhauling the framework of the entire telecom sector, as well as broaden the industry. The telecom sector has remained cash-strapped for a fairly long period of time, given the accumulation of AGR dues.
Any telecom company operating in India must pay, to the Department of Telecommunications (DoT), a share of the revenues earned by them, as licence fee and spectrum charges. ‘Spectrum’ refers to a range of electromagnetic waves, and with respect to the telecom sector, it specifically refers to the frequencies used to transmit sound and data across the country to our phones. Certain portions of the spectrum are allocated by the government to each telecom operator by way of auctions and administrative allocations. Adjusted Gross Revenue (AGR) is paid for using the spectrum owned by the government. The DoT has defined AGR dues to cover all the revenue earned by the telecom companies, thereby, including any revenue earned from non-telecom sources such as deposit interests and sale of assets. The telecom companies pay the DoT about 3-5% of their AGR in usage charges for spectrum or airwaves and 8% of AGR as licence fees.
Concerns were raised with regards to the scope of AGR by the telecom companies, and it was challenged before the Supreme Court. The Supreme Court however, in its 2019 order, while upholding the definition of AGR, ruled that the telecom companies are liable to pay the AGR dues, along with the penalty and interest thereon, and gave the companies 3 months to pay off the same. Such timeline would have drawn the companies to the verge of their end.
Based on this plea of the companies, as well as the government, the Supreme Court decided to review the timeline, but denied looking into the quantum of dues. While the government suggesting a period of 20 years to be granted to the companies to pay off the dues, the Supreme Court allowed a period of 10 years, mandated the telecom operators make the payment of 10% of the total dues by 31 March 2021, and to pay the rest in staggered yearly instalments commencing through 31st March, 2031.
The already loss-making Vodafone-Idea is burdened with Rs 1.9 lakh crore of debt- where it owes Rs 58,254 crore in AGR dues, of which it has paid Rs 7,854 crore. On the other hand, a financially stronger Bharti Airtel owes Rs 43,980 crore in AGR dues, of which it has paid over Rs 18,000 crore.
This led the government to come up with the relief package which is likely to ease the cash flows in the sector. Major relief measures are:
These measures are expected to encourage foreign investment, protect and generate employment opportunities, promote healthy competition, protect interests of consumers, infuse liquidity, and reduce regulatory burden on Telecom companies. It is aimed at providing relief to the telecom companies by easing liquidity and cash flows, as well as inclusive development and bringing marginalized areas into the mainstream. These measures may have a significant impact in achieving the agenda of Sustainable Development Goals.
According to The Sustainable Development Goals Report 2021, FDI by the year 2020 had dropped up to 40% as compared to 2019. SDG 17 is aimed at strengthening the means of implementation and revitalize the global partnership for sustainable development. It targets at mobilizing finances through foreign support, by way of FDI. Before the relief measures, in India, only 49% FDI in the telecom sector was allowed through the automatic route. For FDI beyond 49%, the government route was to be resorted to. This means that the foreign investors were required to obtain prior approval of the government before investing in the telecom sector. This could boost investment and prove as a lucrative opportunity for the entry of new players.
However, Press Note 3 (2020 Series), mandating prior government approval for any investment by an entity incorporated in a country with whom India shares a land border or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, shall continue to apply.
Further, the relief measures can be expected to further SDG 8 and 9, which aim to promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all, and build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation, respectively.
The reforms introduced will have prospective application, thereby having a prospective approach. The said reforms seem to have ignored the present situation of the telecom companies such as Vodafone-Idea which is at the brink of bankruptcy. The critical question is that whether these relief measures serve any good to Vodafone-Idea, providing it the opportunity to continue as a growing concern?
The measures, although provide for a 4-year moratorium period, also provides for the payment of interest on moratorium. The telecom companies opting for the moratorium will continue to bear the burden of such interest. This would, therefore, not reduce the current cash-crunch issues of Vodafone-Idea, but only delay it. For Vodafone-Idea to survive, large promoter funding is the only possible way out. Yet, Ravinder Takkar, Vodafone-Idea managing director, remains positive that the funding is to come soon, and that the four-year payment moratorium will ensure that the loss-making telco survives and is competitive in the market.
Through the rationalisation of the AGR definition, along with the interest rates and penalties on AGR, the telecom companies may be able to benefit from the non-telecom revenue. However, will it benefit the sector to make it lucrative for foreign players and foreign investment, while we may not be able to save the key player today? Only time will tell whether the relief measures aimed at boosting the industry and securing the future of the telecom sector, will be able to salvage the presently stressed Vodafone-Idea. If Vodafone-Idea goes down, it will have far reaching consequences on its employees, consumers, stakeholders, while also affecting the industry structure, which may be reduced to a duopoly as opposed to an oligopoly. In such case, the achievement of Sustainable Development Goals through development in the telecom sector will remain an unfulfilled dream.