After a painfully long wait, even as India’s telecom sector struggled under the weight of an extraordinary regulatory burden, relief finally arrived on Wednesday. The Union cabinet approved a package to rescue the ailing sector. The Centre announced a slew of financial relaxations, with sectoral liberalization and procedural easing thrown in, and declared a dramatic reversal of its long-held stance on an issue that had roiled the industry in general and older telecom operators in particular: whether their adjusted gross revenues (AGR), to be shared with the government as part of a public-private pact made about two decades ago, should include revenues from their non-telecom operations. It was New Delhi’s insistence that they must, upheld by our apex court, that slapped older players with huge bills on past dues and threw the finances of Vodafone-Idea (VI) and Bharti Airtel into a tizzy, though their numbers had already been battered by a price war led by the relatively recent entrant, Reliance Jio. The worst hit was VI, which has been on the verge of collapse, a possibility that raised worries of India being left with an effective duopoly in a vital market from an infrastructure perspective. That prospect has receded for now, thanks to a breather given on AGR dues, but even more notable is the official redefinition of the term to mean just telecom revenues from now on.
Immediate succour for telecom firms has taken the shape of a four-year moratorium on the payments they owe the Centre after our judiciary rejected the argument some two years ago that they only needed to part with a portion of their telecom earnings. To the extent that significant liabilities have been pushed forth, this will improve the survival odds of VI, give Airtel space to regain its earlier levels of performance, and relieve the market’s leader Jio of its payment burden as well. A write-off of AGR dues may have been left out of the cabinet’s consideration for the fulfilment of judicial orders, but something clearly had to be done. Kumar Mangalam Birla, who stepped down recently as VI’s chairperson, had even offered the government his business group’s stake in the company to keep it going. With pressure on its cash flows relieved, VI’s calculus would now have changed. Interestingly, once the period of forbearance is over, telecom companies will have the option of paying some dues through equity.
Among other measures, the interest rate charge on delayed licence and spectrum fees has been reduced, no bank guarantees will be sought for future spectrum auctions, the tenure of allocated airwaves has been stretched by a decade to 30 years, allottees will be allowed to surrender this resource after 10 years, and airwave-sharing had been eased. For global investors, India’s cap on foreign direct investment in the sector via the automatic route has been removed, permitting full overseas ownership of local firms without any need of prior approval. The very sweep of these revisions is an indication that the Centre remains responsive to distress in fields of business that need to prosper for the sake of our economy’s expansion in a scenario of rapid internet adoption. All in all, if its display of flexibility on policy details has offered the sector reassurance of its concern, its big shift on what slice of the sector’s action it’s entitled to is impressive. It reflects appreciation of the fact that the spirit and letter of an agreement may differ. And sometimes, the former serves our collective interest better.
