In relief to telcos, Centre raises spectrum holding cap, extends payment tenure

Paving the way for consolidation in the telecom sector, the Union Cabinet on Wednesday approved an increase in overall spectrum holding limit to 35%.

As per the current rules, no mobile service provider can hold more than 25% spectrum in a service area and more than 50% in a frequency band.

The biggest beneficiaries will be Vodafone and Idea Cellular, which are in the middle of a merger, and Reliance Jio as it plans to buy out spectrum assets of Reliance Communications.

Rajan Mathews, director general, Cellular Operators Association of India (COAI), said, "The new spectrum caps will facilitate consolidation in the industry-- RJio and RCom and Idea and Vodafone. The debt payment extension will have only a minimal benefit through cash flow relief but total payments will increase. However, the systemic issues of the industry such as high taxes and levies of about 30% have not been addressed yet. We expect the government will accelerate these relief measures so that the industry can continue meeting the goals of Digital India," he said.

A 50% cap will now be on combined spectrum holdings in sub 1 GHz bands like 700 MHz, 800 MHz and 900 MHz. There was no ceiling limit for spectrum holding in the above-1 GHz band. Besides, the Cabinet has also approved an extended tenure for repayment of spectrum bought in auctions to 16 years from 10 years. However, this will be an option given to the telecom players.

An official statement said by giving one-time opportunity to opt for higher number of installment (maximum 16 installments) from 10, the total amount received by the government will be higher by Rs 74,446.01 crore till 2034-35. Operators who buy spectrum in auction have to pay the amount in 10 years after an upfront payment with a moratorium of two years.

The increased installment is based upon the principle that the Net Present Value (NPV) of the payment due is protected as per the respective notice inviting application for auction of spectrum from 2012, the statement said.

The government said the measures will facilitate investments, consolidation in the sector and enhance ease of business. With restructuring of deferred payment liability, the cash flow of telecom service providers will increase providing them some relief, the statement said. The revision in limits for spectrum cap holdings will facilitate consolidation and may encourage participation in the future spectrum auction.

The restructuring of deferred payment liabilities of telecom players will be beneficial to incumbents such as Bharti Airtel, Vodafone and Idea Cellular, easing out some financial stress in the short term. Since the entry of Reliance Jio in the telecom sector, the financials of incumbents have taken a downward spiral with declining profits and margins. The high competition -- free voice calls and dirt cheap data tariffs -- has also made a way for smaller players to exit. Airtel is buying out Telenor and wireless assets of Tata Group, Vodafone and Idea have announced a merger, Aircel has filed for bankruptcy and RJio is buying wireless assets of Reliance Communications.The cumulative debt of telecom industry stands at Rs 4.6 lakh crore.

The Cabinet approval is in line with Telecom Commission, which had agreed with Telecom Regulatory Authority of India's suggestion to raise spectrum holding limit of mobile operators to ease the exit route for those under stress. The relief measure of extended time period for spectrum payment was recommended by an Inter-Ministerial Group which was formed last year to look into ways of easing out stress in the telecom sector.

In right frequency

• The biggest beneficiaries will be Vodafone and Idea Cellular, which are in the middle of a merger, and Reliance Jio as it plans to buy out spectrum assets of Reliance Communications.
• A 50%  capwill  now be on combined spectrum holdings in sub 1 GHz bands like 700 MHz, 800 MHz and 900 MHz