👏🏻 Good News for Telecos!
How will the new telecom reforms help Vodafone, Airtel, and Jio?
With Kumar Mangalam Birla giving up his chairmanship of Vodafone India, it almost felt like the end of the road for Vodafone India. But somewhere in our hearts, we all knew that the government wouldn’t let Vi fail.
Voilá. The government has come up with some major reforms in the telecom sector. What are those reforms and why were those needed?
Read on…
The Problems
There was this one Supreme Court ruling that made lives hell for telecom companies. Now they were supposed to pay up additional "AGR" dues to the government. Amount? Approx all the telecom companies combined were required to pay approx. Rs.1.46 lakh crores!
One sec. What's this "AGR dues”?
AGR = Adjusted Gross Revenue.
You see, telecom companies buy rights to operate their telecom business from the government (spectrum). Along with spectrum charges, the companies have to pay a percentage of revenue every year to the government. This is called “AGR”.
The problem lies in how the government defines this. The government says, "all revenue," and not just telecom revenue, will come under the definition of AGR.
You see how this is unfair, right?
Yet, because the government was technically correct (and for more masala-reasons, that deserves a piece of its own), the Supreme Court gave the decision in its favour.
However, this wasn’t the only issue. Spectrum usage charges, penalties, interest on unpaid amounts were also very high. Moreover, if foreign investors wanted to invest in more than 49% stake in the telecom sector, they required approval from the government for the same.
All of these issues combined made telecom operations a tough task for the players. They couldn’t raise money beyond a point from foreign players easily and their liabilities towards the government kept increasing.
Vodafone is at the brink of collapse and the very important sector could have become a duopoly between Jio and Airtel.
The government had to do something. And so, it came out with reforms.
The Solutions
The Government has finally said that the telecos need not include non-telecom revenue to compute AGR dues.
So all the old dues forgiven?
Naah. Itta bhi bada dil nahi hai (The government isn’t that generous)!
This reform will be applicable in the future. Also, no Spectrum Usage Charges are required for spectrums acquired in the future.
But, what about the dues that are already there?
The companies have been granted relief for the next 4 years from paying these dues to the government. But they have to pay interest for this period.
From 1st October 2021, the interest rate will be slashed by 2%. And they won’t have to pay interest on interest every month. Instead, compounding of interest will be done yearly.
But if at the end of 4 years, they still don’t have money, they can even pay this amount in the form of equity (shareholding) to the government!
The telecos, if needed, can give as much stake to foreign entities as required.
With this move, will Vodafone be able to get back up on its feet?
Only time will tell...
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