The Indian Union Cabinet (“Cabinet”), aiming to protect and generate employment opportunities, promote healthy competition, protect consumer interests, infuse liquidity, encourage investment, and reduce regulatory burden on Telecom Service Providers (“TSPs”), has approved several structural and procedural reforms (“Reforms”) in the Telecom sector on September 15, 2021. The Reforms will most likely lead to an inflow of investment into the sector thereby offering a welcome relief to the TSPs that are struggling under staggering amounts of debt pursuant to the lengthy legal battle with the Supreme Court siding with the government's view of Adjusted Gross Revenue.
The Reforms have also been announced to support the vision of a robust network technology for the wide deployment of 4G & 5G technology to connect all regions of India. This vital connect will, hopefully, prompt all users nationwide to choose the indigenously developed technology, creating an enabling environment for investment in 5G networks.
The nine structural reforms and five procedural reforms plus relief measures for TSPs, which aim to build the digital infrastructure, are outlined below.
- Rationalization of Adjusted Gross Revenue (“AGR”): Non-telecom revenue will be excluded on a prospective basis from the definition of AGR.
- Bank Guarantees (“BGs”) rationalized: With the huge reduction in BG requirements (80%) against License Fee (“LF”) and other similar Levies, one BG will suffice, erasing the need for the customary multiple BGs in different licensed service areas (“LSAs”) in the country. .
- Interest rates rationalized/penalties removed: From October 1, 2021, delayed payments of LF/Spectrum Usage Charge (“SUC”) will attract interest rate of State Bank of India's Marginal Cost of Funds (“MCLR”) plus 2% instead of the former MCLR plus 4%; this interest will be compounded annually instead of monthly; and the penalty and interest on penalty will be removed.
- For auctions held henceforth, no BGs will be required to secure instalment payments.
- In future auctions, the tenure of spectrum has been increased from 20 to 30 years.
- For spectrum acquired in future auctions, the surrender of spectrum will be permitted after 10 years.
- No SUC will be levied for spectrum acquired in future spectrum auctions.
- Spectrum sharing will be encouraged, and the additional SUC of 0.5% for spectrum sharing removed.
- To encourage investment, 100% Foreign Direct Investment (“FDI”) under the automatic route will be permitted in the Telecom Sector, but all safeguards will apply.
- Spectrum auctions will be held in the last quarter of every financial year.
- The cumbersome requirement of licenses under the 1953 Customs Notification for wireless equipment has been removed and is replaced with self-declaration.
- Self-Know Your Customers (“KYC”) reforms will be permitted; and the E-KYC rate has been revised to Rupee one only.
- The paper Customer Acquisition Forms (“CAF”) will be replaced by digital storage of data.
- The Standing Advisory Committee's clearance on Radio Frequency Allocation for clearance for installation of mobile towers and allocation of radio frequency waves has been streamlined and the Department of Telecommunications (“DoT”) will now accept data on a portal on self-declaration basis. Portals of other agencies (such as Civil Aviation) will be linked with the DoT Portal.
To address the liquidity requirements of TSPs, the Cabinet approved the following for all TSPs:
- Moratorium/deferment of up to four years in annual payments of dues arising out of the AGR judgement with the stipulation that the Net Present Value (“NPV”) of the due amounts are duly protected.
- Moratorium/deferment on due payments of spectrum purchased in past auctions (excluding the auction of 2021) for up to four years with NPV protected at the interest rate stipulated in the respective auctions.
- Option to TSPs to pay the interest amount arising due to the said deferment of payment by way of equity.
- The amount due towards deferred payment may be converted to equity, at the option of the Government, at the end of the Moratorium/deferment period. The guidelines for the same will be finalized by the Ministry of Finance.
Such relief measures are intended to ease liquidity and improve cash flow of the TSPs and will likely reduce default risks at banks exposed to the telecom sector. The Reforms are also indicative of the Indian government's intent to ensure sustainable growth and healthy competition in the telecom sector. Stakeholders are hopeful that the pathbreaking package of reforms announced by Cabinet herald a new era of distinctive growth for India's digitally powered economy.
The pandemic has certainly pushed the lawmakers into fast track, considering that on one hand companies are incurring losses caused due to the pandemic and on the other hand several opportunities have opened, especially in the telecom sector, with focus on better connectivity and bandwidth. Hence, quality of service, has taken a pole position. Hopefully, these reforms will push telecom services to another level, which will allow the best of the global industry to provide their services in India, resulting in the existing operators investing more into innovation and offering better quality services. Surely, we are looking at a boom for the telecom sector this decade.
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