DNA Explainer: Major takeaways from government's sector-saving telecom reforms

In a big relief to the telecom sector, the Union Cabinet on Wednesday announced the Telecom Relief Package. This package gives a moratorium of four years to the telecom industry players for the payment of the Adjusted Gross Revenue (AGR) dues. This comes particularly as a relief to the debt-strapped telcos Vodafone Idea and Bharti Airtel and also to banks that gave them huge loans.

The Telecom Relief Package provides prospective concessions along with a permitted moratorium on payments of AGR dues and spectrum fees by the telecom majors. This big step ensures that Vodafone Idea remains in the competition rather than winding up its India operations. It is also beneficial to the telecom industry which can continue to remain a competitive marketplace rather than getting monopolized.

Telecom Minister Ashwini Vaishnaw while briefing the media said that nine structural reforms for the telecom sector were approved. Here we look into these reforms in detail.

Structural reforms pointers

This offers relief to the telecom companies on the time to clear dues, though with an interest implication.

This package gives retrospective relief in the form of a moratorium of four years to the telecom industry players

It agrees to exclude non-telecom income from the definition of Adjusted Gross Revenue (AGR) dues in the future.

It has also offered a cut in spectrum usage charges (SUC) to reduce the capital cost of telecom companies.

Bharti Airtel, Reliance Jio, and Vodafone Idea are likely to benefit but it comes as a virtual lifeline for Vodafone Idea.

The Telecom Relief Package given by the government will also be instrumental in generating more jobs in the market.

It will protect the overall interests of the consumers, employees, business partners, banks, and government at large.

The definition of annual gross revenues (AGR) has been changed with prospective effect to exclude non-telecom revenues.

The Union Cabinet rationalized spectrum usage charges (SUC) to make it more affordable and become IRR accretive.

Interest on spectrum usage charges (SUC) will also be lower than the current compounding formula.

The Union Cabinet permitted 100% foreign direct investment (FDI) into the telecom sector via the automatic route.

The outstanding amount owed to the government by the telecom sector is Rs 92,000cr by way of license fees and Rs.41,000 crore by way of SUC.

Most of these dues are guaranteed by banks and so if it tries to release funds then it could seriously undermine the health of banks.

Along with the telecom industry, this relief package gives a breathing period of 4 years to the debt-ridden banks.

After 4 years, if statutory dues are the only challenge, then the government would be open to converting the outstanding debt into equity.

For future spectrum auctions, the government has increased the holding period from 20 years to 30 years.

In addition, telecom companies can also surrender spectrum after 10 years, subject to payment of surrender fee.