To boost the distressed telecom sector, the Union Cabinet has introduced various reforms such as the exclusion of non-telecom revenue from the definition of AGR, a moratorium on payment of pending AGR dues, and 100% FDI under the automatic route.

Introduction

Telecom Services Providers (TSPs), under the licenses granting them the right to operate in India, are obligated to share a percentage of their annual gross revenue (AGR) with the government as a license fee. These licenses define AGR broadly to include revenue generated from telecom as well as non-telecom activities carried out by licensees. However, certain TSPs disagreed with the view that AGR includes revenue generated from non-telecom activities and chose to litigate the matter before the Telecom Disputes Settlement and Appellate Tribunal and the Supreme Court. During the pendency of this litigation, the dues of some entities were not paid on the extended definition of AGR (i.e. dues were not paid on the revenue component from non-telecom activities). However, the Supreme Court affirmed the view that revenue of TSPs from all sources should form part of the calculation of AGR. Consequently, the Court directed the telecom companies to pay their pending dues towards license fees, along with penalty and interest. As a result, at the end of 2019, the telecom industry was burdened with nearly INR 92,000 crore (approx. USD 12 billion) in arrears, penalty and interest payments. Notably, only 25% of this amount was the actual license fee due and the remaining 75% of liability was on account of penalty, interest and interest on the penalty.

In addition to the hardship imposed by this demand, the TSPs have also endured bloated operational costs and amassed vast debt. The telecom sector has seen a major consolidation and the market has contracted from about twelve telecom operators to three.

To provide relief in the backdrop of the outstanding performance of the telecom sector in meeting challenges faced during COVID-19, the Union Cabinet approved a crucial relief package for the telecom sector, in the form of major reforms, outlined in the Press Release of 15 September 2021 (Press Release). We discuss some of these reforms and their impact below.

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