Cash flow relief from pain for Airtel, Vodafone, others as Telecom Commission adopts IMG idea

Adopts IMG idea of longer payment period for spectrum at lower interest; no extension to two-year moratorium. (Image: Reuters)

The Telecom Commission, the highest policymaking body in the telecom sector, on Friday approved some partial relief in the form of cash flows for operators while seeking legal opinion on relaxations in spectrum trading payment norms and referring to the Telecom Regulatory Authority of India (Trai) the matter of relaxing spectrum caps for operators in a circle. Acting on the recommendations of the inter-ministerial group (IMG) set up by the government a couple of months ago, the TC approved extending the deferred payment period for spectrum bought in auctions by the operators from the current 10-year period to 16 years. However, there won’t be any extension in the two-year moratorium operators get after paying a portion of the amount upfront. The move would bring cash flow relief to the operators since the net present value of the amount won’t change. The telecom industry’s total debt stands at around Rs 4.60 lakh crore. It has bought spectrum since 2010 worth Rs 3.45 lakh crore for which an upfront payment of Rs 1.9 lakh crore has been made and the balance Rs 3.08 lakh crore needs to be paid up to 2028-29. If the deferred payment period is increased, this amount would be paid over a longer tenure.

The commission also approved the IMG recommendation that if there’s any delay in payments by operators of licence fee or spectrum usage charges, etc, the interest will be charged on the basis of MCLR instead of PLR. Officials said that the interest this way would work 2-3% lesser than at present.
These approvals by TC now need to be approved by the Union Cabinet, officials said.

Meanwhile, on the other two set of relief measures suggested by the IMG — tweaking spectrum trading payment guidelines and spectrum cap — the TC sought legal opinion from the law ministry on the first and Trai’s views on the second. Officials said that it expects the same to come within two weeks, after which the TC will take a call on them. The proposal on spectrum trading entails that only the profit earned in trading deals is taken into account in the adjusted gross revenue (AGR) for calculating licence fee and spectrum usage charge payment against the current full amount. The legal opinion has been sought on whether this should be done retrospectively or prospectively.

Though spectrum trading guidelines were approved by the Cabinet more than two years ago and there have been a number of deals, the biggest dampener in trading pacts or a factor which makes it costly is the double charge companies have to pay for such agreements. The seller of the spectrum has to pay to the government licence fee and spectrum usage charge amounting to 13% of its AGR on the amount its receives from the buyer even if the spectrum is acquired through auction. The buyer needs to pay a transactional charge to the government that is1% of the transactional amount or 1% of the prescribed market rate, whichever is higher. The industry had earlier urged the government not to charge licence fee and SUC from the proceeds of the seller as it amounts to double charging but the government had rejected it.

For instance, when it 2016 Bharti Airtel acquired the 1800 MHz band spectrum of Videocon Telecommunications, it was around 61% higher than the auction-determined prices of 2015. If the amendment under consideration is effected, the seller would only have to pay a one-time licence fee and SUC on the profit earned from the trade — that is, the difference between the auction price and the traded price — rather than the entire proceeds.

On spectrum caps, the norm is that an operator cannot have spectrum more than 25% assigned in a circle and 50% in a given band. The 50% cap in a given band acts as an obstacle to mergers and acquisitions. For instance, the Vodafone-Idea merger that is in works would have to surrender some spectrum in five circles if this norm is not relaxed.