Telecom reforms a big boost but no respite from fee on existing spectrum income

A series of measures announced by the Union Cabinet would give a major boost to the telecom sector. This includes a four-year moratorium on AGR (adjusted gross revenues) dues, rationalisation of AGR, reduction in bank guarantee requirements against licence fee, increase in the tenure of the spectrum, no spectrum usage charges (SUC) in future auctions, among others.

These measures have come at a time when the incumbents like Airtel and Vodafone Idea have been badly hit by the AGR. As per ratings agency ICRA, the four-year moratorium is likely to provide a breather of Rs 14,000 crore to the industry. The moratorium will also increase the survival chances of Vodafone Idea, which in particular, has the highest AGR dues. The Cabinet decision came months after the Supreme Court had asked the telcos to clear their AGR dues in 10 annual instalments.

The rationalisation of AGR will also result in significant savings for the telcos as they will no longer be required to pay AGR on non-telecom revenues in future. For the record, the Supreme Court, in its landmark October 2019 verdict, had maintained that AGR should include both telecom and non-telecom revenues.

Sonam Chandwani, Managing Partner at KS Legal & Associates says that these measures will provide telcos with a much-needed reprieve, but there is no immediate relief for spectrum usage charges (SUC) or bank guarantees. “The only spectrum bought in future auctions may be exempt from the usage price. There is unlikely to be any respite from the fee on existing spectrum income. The relief comes just in time, and it will at the very least assist telecom companies in navigating the market. Though liability is postponed, it is not eliminated. Given Vodafone Idea's dire financial situation, it is unclear how the company would raise funds to pay off its debts and stay afloat in the market,” she says.

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