Govt approves sector reform package; green-lights AGR rationalisation and deferment of dues

17 Sep 2021

India’s Cabinet has approved a reform package for the beleaguered telecoms industry, which the government says will promote healthy competition, encourage investment and reduce the regulatory burden on service providers. The Economic Times writes that the package comprises nine structural reforms, five procedural reforms and four measures to address liquidity requirements of service providers. The overhaul tackles a number of the industry’s long-standing grievances, such as the definition of Adjusted Gross Revenue (AGR) – which will be altered to exclude non-telecom revenue – whilst relieving some of the immediate financial pressures on operators by providing a moratorium on payments. In an interview with the paper, Telecom Minister Ashwini Vaishnaw dismissed the suggestion that the government’s decision to approve the package was triggered by the threat that Vodafone Idea (Vi) might be forced to close, narrowing the mobile market to just two private players and one state-owned operator. Instead, the official said that the government was looking to address the ‘underlying malaise’ that was restricting investment and preventing the ‘massive capital injection’ needed to meet the administration’s goals regarding the narrowing of the digital divide. In a similar vein, a public statement from the government on the matter stressed that the package will ‘boost 4G proliferation, infuse liquidity and create an enabling environment for investment in 5G networks’.

The package encompasses the rationalisation of AGR – the figure upon which most of the fees paid by telcos are based – and bank guarantee (BG) systems, the former by excluding revenue from non-telecom sources and the latter by reducing BG requirements against licence fees and similar charges by 80% and removing the requirement for multiple BGs for different service areas. In a similar vein, from 1 October 2021 interest rates charges for delayed licence fee and spectrum usage charge (SUC) payments will be levied at the Securities and Exchange Board of India’s (SEBI’s) marginal cost of lending rate (MCLR) plus 2%, rather than the current MCLR plus 4%, with interest to be compounded annual rather than monthly, whilst penalties and interest on penalties for such have been removed. Regarding future spectrum auctions, meanwhile the following changes are to be made: no BGs will be required to secure instalment payments; the duration of spectrum licences will be extended to 30 years from 20, with providers able to return spectrum after ten years; no SUC will be charged on frequencies purchased in future auctions; and spectrum sharing is to be encouraged by the removal of the additional 0.5% SUC on shared spectrum. Spectrum auctions will also be held in the final quarter of each financial year.

With an eye on improving ease of doing business and increasing investment, the reforms will eliminate red tape in some areas. To that end, operators will be permitted to increase foreign direct investment (FDI) to 100% through the automatic route, requirements for customs notifications regarding wireless equipment will be replaced with a simple self-declaration and the Standing Advisory Committee on Radio Frequency Allocation (SACFA) clearance requirements will be eased so that providers pay submit data to an online Department of Telecommunications (DoT) portal. Elsewhere, customer registration will be streamlined with the use of app-based user identification (referred to as ‘know your customer’ or KYC) permitted, the charge for completing electronic KYC reduced to INR1 (USD0.014) and the removal of the requirement to renew KYC when changing subscription type (i.e. post-paid to pre-paid or vice versa). Similarly, customer acquisition forms will be replaced with digital storage of data.

Finally – and perhaps most importantly – the government green-lit an option for operators to defer for up to four years payments on dues arising from the Supreme Court’s October 2019 decision on AGR and dues for spectrum purchased at auction before 2021. The Net Present Value (NPV) of the dues will be protected, however. Service providers will be given the option to pay the interest arising from such deferral by way of equity and to potentially convert the due amount by equity at the end of the moratorium/deferment period – guidelines for which will be finalised by the Ministry of Finance.