India’s telecom sector has been struggling for years now. Its downfall began right from the time when the 2G spectrum scam of the UPA era was exposed. In 2016, the entry of Reliance Jio in the telecom market further exacerbated the woes of other service providers like Vodafone, Aircel (which went bankrupt in 2018), Bharti Airtel and Idea. Vodafone and Idea came together in 2018 to save each other from going bankrupt as well. That prevented India from sliding into a telecom duopoly of Jio and Airtel as the only two major service providers. Nearly all telecom providers owe large amounts of money to the government and have been unable to pay it.
For quite some time now, the telecom industry has been calling on the central government to intervene and provide some relief to the sector which is so crucial to India. The government too has been keen on creating an atmosphere in which competition among providers thrives. So, the Modi government has now stepped in, and some big bang telecom reforms have been announced. Prime Minister Modi himself has made these decisions, and they are set to provide much-needed oxygen for the telecom sector.
- Rationalisation of the definition of adjusted gross revenue (AGR) i.e., the usage and licensing fee that telecom operators are charged by the Department of Telecommunications. This was a big point of contention between telecom providers and the government.
- 100% FDI (Foreign Direct Investment) in the telecom sector through the automatic route has been approved to boost investments. Earlier, FDI via automatic route was capped at 49%.
- Spectrum usage charges will now be rationalised and there will now be an annual compounding of rates rather than a monthly one. Penalty on payment of licence fees, spectrum user charges and all kinds of charges would no longer apply.
- A moratorium has been announced on statutory dues of the telecom sector for four years. According to the government, this will improve the cash flow within the sector, which can be used in more productive areas.
Big relief for #telecom sector!
Cabinet approves 4 year moratorium on dues telecom operators owe government
MCLR of + 2% interest to be paid by those who avail of moratorium. pic.twitter.com/PWU8JN9sTi
— Poulomi Saha (@PoulomiMSaha) September 15, 2021
Union Minister for IT, Telecommunications and Railways, Ashwini Vaishnav said, “the reforms package is adequate for the survival of existing players and will ensure robust competition, and added that with more reforms, and more structural changes that are in the pipeline, “more players should come”.
Other structural reforms announced by the government include the increase of tenure holding of the spectrum from 20 to 30 years, surrender of airwaves after 10 years in case of the changed business atmosphere and others. Apart from the structural reforms which will breathe new life into the telecom sector, the Modi government has also announced several procedural reforms. These include removal of cumbersome requirements of licenses for wireless equipment, allowing self-KYC (app-based), e-KYC rate revision to only Re 1 and the replacement of paper Customer Acquisition Forms (CAF) by digital storage of data.
The government will not bear any cost for the telecom moratorium, says minister Ashwini Vaishnaw.
— BloombergQuint (@BloombergQuint) September 15, 2021
The moratorium of four years on statutory dues will immensely help the telecom sector in benefitting out of the reforms and building the ability to pay the government back in the next four years. So far, telecom service providers Vodafone-Idea and Airtel were struggling to find a way to pay the government all their dues. Bharti Airtel, Vodafone Idea and Reliance Communications — owed nearly Rs 92,000 crore to the Centre as license fee and Rs 41,000 crore as spectrum usage fees alone. Further, an annual compounding of interest rates rather than a monthly one will provide tremendous legroom to telecom providers. With competition and customer choice, the reform is set to boost 4G proliferation, infuse liquidity and lure investment in upcoming 5G networks.
By far, the most important reform which the Modi government has announced is the redefinition of the term adjusted gross revenue (AGR). Until now, the telecom service providers were required to pay AGR dues to the government which included non-telecom revenue. For example, a telecom provider’s headquarters in India has a food court. The revenue of that food court, used by the company’s staff, was also included in the AGR, according to the previous definition. Now, AGR includes only telecom-related revenues.
100% FDI in the telecom sector, with all necessary checks and balances, will provide an entirely new opening for telecom providers to expand and build upon their existing networks. Overall, customer experience is set to receive a boost with the flow of greater FDI into the telecom sector.
Earlier this year, the Modi government cleared 12,000 crore rupees to incentivise manufacturing of core transmission equipment, 4G/5G next-generation radio access network, and wireless equipment, Internet of Things-access devices, other wireless equipment, switches, routers, etc. In the next five years, the Modi government will give incentives to various companies for starting indigenous manufacturing of telecommunication equipment in the country. The Modi government is not only promoting the domestic manufacturing of telecommunication equipment but is also encouraging the Indian Information Technology behemoths to work towards the virtualisation of telecom infrastructure.
Soon enough, the reforms ushered in by the Modi government will form the bedrock of India’s telecom sector becoming one of the mightiest in the world.