Modi overhauls India's troubled telecom sector

New Delhi: A meeting of the Union Cabinet chaired by Prime Minister Narendra Modi Wednesday approved sweeping changes in the policies that govern the telecom sector in the country. The decisions include opening the sector for hundred percent foreign direct investment under the automatic route, amending the formula that governs the sharing of the revenue with the government, offering a four-year moratorium for the payment of dues to the government, and extending the licence period to 30 years with the option to surrender the spectrum after 10 years, among other things.

India's telecom sector, which is the second-largest in the world with more than 1.1 billion wireless and fixed-line subscribers, was grappling with several issues that included low realisation of revenue per user due to cutthroat competition in the industry, burden of sharing revenue with the government under the licence conditions, and huge unpaid liabilities towards the government under the earlier revenue sharing formula.

Telecom minister Ashwini Vaishnav said these structural and procedural reforms will boost employment and growth of the telecom sector, address the liquidity situation of telecom companies, reduce the regulatory burden, usher in competition and protect consumer's interest.

Vaishnav said the telecom sector performed well during the Covid-19 global pandemic that saw a large number of workforce shifting to work-from-home and online education mode due to lockdowns which was possible due to a robust telecom and broadband connectivity in the country.

The reforms approved by the Cabinet include nine structural reforms and five procedural reforms.

The minister said these reforms, including changing the formula for calculating the adjusted gross revenue (AGR) and other reliefs given to the telecom sector were revenue-neutral in nature.

The major structural reforms to overhaul the sector include rationalisation of the adjusted gross revenue (AGR), a controversial subject in the sector, as non-telecom revenue of telecom companies will be excluded from the AGR on a prospective basis.

New formula for calculating revenue sharing with government

Another pain point for telecom companies, the requirement to furnish bank guarantees under the licence conditions have been reduced by up to 80% and the government has also done away with the requirement for furnishing multiple bank guarantees as only one bank guarantee will be enough.

The government has also done away with the penalties in case of a delayed payment of licence fees and spectrum usage charges and they will only attract interest rates linked to the State Bank of India's MCLR rate. The new rate of interest on delayed payment will be 2 per cent over the SBI's MCLR, earlier it was 4% plus the MCLR. In yet another relief, there will annual compounding of interest on outstanding dues as against monthly compounding earlier.

The government has also done away with the need to furnish bank guarantees for future spectrum auctions and the tenure of the spectrum has also been increased from 20 years to 30 years with the option to surrender it after 10 years.

The government will also not collect the spectrum usage charge (SUC) in future spectrum auctions, it will completely overhaul the revenue model in the telecom sector and reduce the burden on telecom companies.

Once the spectrum has been allotted, the minister said, the government will encourage spectrum sharing and the additional levy of half a percent of the SUC has been done away with.

Procedural reforms

In order to encourage foreign investment, the government also opened the telecom sector for 100% foreign direct investment with certain safeguard measures.

In order to induce certainty in the telecom sector, the government has decided to release a spectrum auction calendar and the auctions will be normally held in the last quarter of a financial year. Secondly, the government has removed the requirement to obtain a licence under Customs rules for importing wireless equipment and it can be done on the basis of self-declaration.

In a big relief to both the customers and telecom companies, the government has simplified the know your customer (KYC) rules. It permitted self-KYC, revised the e-KYC rate to just one rupee and removed the requirement to furnish fresh KYC for shifting from prepaid to postpaid and vice-versa.

The government also permitted the companies to store customer's data in digital form and removed the requirement for audit of warehouses of telecom companies where nearly 300-400 crore paper of customer acquisition forms have been stored.

Reform in tower sector

The procedure for setting up telecom towers has been simplified and the department of telecom will accept self-declared data on its portal.

Boosting liquidity

In a series of measures to boost liquidity, the Cabinet cleared the moratorium of up to four years on payment of dues arising out of a Supreme Court judgement. This option is offered to all telecom companies but the government will ensure that the net present value (NPV) of the due amount is protected. A similar moratorium has been offered in the case of the spectrum purchased by telcos in previous auctions conducted prior to 2021.

The government will also allow telecom companies to pay such outstanding amounts by converting them into equities. Its guidelines will be separately announced by the ministry of finance.