India is planning a number of “long-term measures” to improve the financial state of the country’s struggling telecom sector, which has now seen several bankruptcies and is now staring at another possible bankruptcy in Vodafone Idea.
The Indian government is now considering redefining adjusted gross revenue (AGR) to exclude non-telecom items to cut statutory burden. Additionally, it may also allow telcos to surrender unused spectrum for a small penalty, the Economic Times reported.
The government is also discussing various other measures, including reducing licence fees (LF) and spectrum usage charges (SUC) and phasing out bank guarantees.
“The government is looking at ways to improve the financial health of the sector, not just of one company (Vodafone Idea). If the sector is nursed back to health, Vodafone Idea too will benefit,” a senior government official was quoted as saying by the publication.
Before approving these measures, the government will need to officially start “extensive consultation” with the country’s finance ministry as there will be “revenue implications”.
Relooking at the definition of AGR to exclude non-telecom items has been a long-standing demand of the Indian telecom operators. The country’s Supreme Court had in 2019 a judgement favoured the telecom department’s AGR definition, which resulted in hefty penalties on Vodafone Idea, Bharti Airtel and Tata Teleservices with various other companies.
Bharti Airtel and Vodafone Idea are facing a combined Rs 1.02 lakh crore [$16.22 billion) in AGR-related licence fees and spectrum usage charge (SUC) dues. The Supreme Court’s October 2019 judgement has pushed cash-strapped Vodafone Idea towards a possible bankruptcy.
Defunct telcos Reliance Communications (RCom) and Aircel are already going through insolvency proceedings. Their respective lenders are currently fighting a battle in the Indian courts to recover their money.
Another senior government official told the publication that a fresh definition for AGR excluding all non-telecom revenue would remove all grey areas which have been a “bone of contention” between the telcos and the government.
India’s telecom regulator, TRAI, had already recommended a reduction in license fees for telecom operators and phasing out of spectrum usage charges gradually. The Indian Cabinet, however, recently said that more consultation is needed in this matter before making the final decisions based on the regulator’s suggestions.
The move to allow Indian telcos to surrender unused spectrum with a small penalty is expected to help Vodafone Idea, which is not using almost a third of its spectrum for which it has to pay instalments to the telecom department.
As per existing rules, Indian telecom operators can only trade or share spectrum with each other.
Vodafone Idea owes the Indian government over $20 billion in AGR and deferred spectrum payment dues. Its net debt stood at $24.32 billion, and its cash balance was just $47.3 million in the quarter ended March 2021.
The telecom operator recently sought a year of moratorium to clear dues related to the recently purchased spectrum due to its bad financial health. However, analysts and government officials believe that giving a one-year payment moratorium will not be sufficient for the telco to survive in the market.
“Vodafone Idea’s board approved close to Rs 25,000 crore [$3.38 billion] mix of debt and equity but it seems as though the company needs about Rs 50,000 crore [$6.76 billion]. The company needs to put its own house in order which means first raising tariffs and then achieving operational efficiencies,” the government official was quoted as saying.