Ushering in big bang reforms, the Union Cabinet, chaired by Prime Minister Narendra Modi, on Wednesday approved nine structural and five process reforms in the telecom sector. Among the key reforms are a four-year moratorium on payment of statutory dues by telecom companies, both AGR (adjusted gross revenue) and spectrum charges. Also, 100% FDI (foreign direct investment) in telecom via the automatic route has been approved.
These schemes are expected to protect and generate employment opportunities, promote healthy competition, protect the interests of consumers, infuse liquidity, encourage investment and reduce the regulatory burden on Telecom Service Providers (TSPs). According to the Cabinet, in the backdrop of the outstanding performance of the telecom sector in meeting Covid-19 challenges, with the huge surge in data consumption, online education, work from home, interpersonal connect through social media, virtual meetings etc., the reform measures will further boost the proliferation and penetration of broadband and telecom connectivity.
“The Cabinet decision reinforces the Prime Minister’s vision of a robust Telecom Sector. With competition and customer choice, Antyodaya for inclusive development and bringing the marginalized areas into the mainstream and universal broadband access to connect the unconnected. The package is also expected to boost 4G proliferation, infuse liquidity and create an enabling environment for investment in 5G networks,” read an official release.
The nine structural reforms introduced by the Cabinet are as follows:
* RATIONALIZATION OF ADJUSTED GROSS REVENUE: Non-telecom revenue will be excluded on a prospective basis from the definition of AGR.
* BANK GUARANTEES (BGS) RATIONALIZED: Huge reduction in BG requirements (80%) against Licence Fee (LF) and other similar levies. No requirements for multiple BGs in different Licenced Service Areas (LSAs) regions in the country. Instead, One BG will be enough.
* INTEREST RATES RATIONALIZED/ PENALTIES REMOVED: From October 1, 2021, delayed payments of Licence Fee (LF)/Spectrum Usage Charge (SUC) will attract an interest rate of SBI’s MCLR plus 2% instead of MCLR plus 4%; interest compounded annually instead of monthly; penalty and interest on penalty removed.
For auctions held henceforth, no BGs will be required to secure installment payments. The industry has matured and the past practice of BG is no longer required.
* SPECTRUM TENURE: In future auctions, the tenure of spectrum increased from 20 to 30 years.
The other structural reforms which are introduced by the Cabinet are: Surrender of the spectrum will be permitted after 10 years for spectrum acquired in the future auctions; no Spectrum Usage Charge (SUC) for spectrum acquired in future spectrum auctions; spectrum sharing encouraged—additional SUC of 0.5% for spectrum sharing removed and to encourage investment; 100% Foreign Direct Investment (FDI) under automatic route permitted in the telecom sector. All safeguards will apply.
The five procedural reforms for the telecom sector introduced by the Cabinet today are as follows:
* AUCTION CALENDAR FIXED: Spectrum auctions are to be normally held in the last quarter of every financial year.
* EASE OF DOING BUSINESS PROMOTED: Cumbersome requirement of licences under 1953 Customs Notification for wireless equipment removed. Replaced with self-declaration.
* KNOW YOUR CUSTOMERS (KYC) REFORMS: Self-KYC (app-based) permitted. E-KYC rate revised to only Re 1. Shifting from prepaid to post-paid and vice-versa will not require fresh KYC.
Paper Customer Acquisition Forms (CAF) will be replaced by digital storage of data. Nearly 300-400 crore paper CAFs lying in various warehouses of TSPs will not be required. Warehouse audit of CAF will not be required.
SACFA clearance for telecom towers eased. DOT will accept data on a portal based on self-declaration basis. Portals of other agencies (such as Civil Aviation) will be linked with DOT portal.
The Cabinet approved the following for all the Telecom Service Providers (TSPs):
Moratorium/Deferment of up to four years in annual payments of dues arising out of the AGR judgement, with, however, by protecting the Net Present Value (NPV) of the due amounts being 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 the TSPs to pay the interest amount arising due to the said deferment of payment by way of equity.
At the option of the government, to convert the due amount pertaining to the said deferred payment by way of equity at the end of the Moratorium/Deferment period, guidelines for which will be finalized by the Ministry of Finance.
According to the official release, the above will be applicable for all TSPs and will provide relief by easing liquidity and cash flow. This will also help various banks having substantial exposure to the telecom sector.
Briefing the media about the reforms, Union Minister for Communications, Ashwini Vaishnaw said these reforms will change the framework of the entire telecom sector. “They will deepen and broaden the industry,” he said. “Prime Minister Narendra Modi took a bold decision over AGR (adjusted gross revenue) today. A decision has been taken to rationalise the definition of AGR. All non-telecom revenue will be taken out of AGR,” the minister informed.
He further said that in the Cabinet meeting, it was decided that penalty on payment of licence fees, spectrum user charges and all kinds of charges have been completely scrapped. “There was a regime of heavy interest, penalty and interest on penalty on payment of licence fees, spectrum user charges and all kinds of charges. It has been rationalised today. Annual compounding (of interest) will be done instead of monthly compounding,” said the minister. “A reasonable interest rate of Marginal Cost of Funds based Lending Rate (MCLR) plus 2% interest rate has been offered and the penalty has been completely scrapped,” he added.
Vaishnaw said the move will pave way for large-scale investments in the telecom sector. “Investment means employment—more the investment, more the employment,” he stated.
A report from Mumbai said welcoming the reforms and relief package announced by Government of India, Jio said that the timely step will help in strengthening India’s telecom sector. In an official statement, the company said reforms announced by the government will accelerate the realisation of Prime Minister Narendra Modi’s Digital India vision and enable India’s transformation into the world’s leading digital society.
“Jio’s mission is to bring the fruits of the digital revolution to 1.35 billion Indians. Guided by this mission, we have ensured that Indians have the highest quality and the highest quantity data access anywhere in the world, at the most affordable prices. The government’s telecom sector reforms will encourage us to bring newer and greater benefits to our customers,” the company said.
Commenting on the occasion, Mukesh D. Ambani, Chairman, Reliance Industries, thanked Prime Minister for this bold initiative and said, “The telecom sector is one the prime movers of the economy and the key enabler for making India a Digital Society, I welcome the Government of India’s announcement of reforms and relief measures that will enable the industry to achieve the goals of Digital India.”
The company added that it looks forward to working with the Government of India and other industry players in reaching all the goals and milestones of the Digital India vision, “so that we can collectively make every sector of the economy productive and enhance the Ease of Living for every Indian.”