The Union Cabinet, headed by Prime Minister Narendra Modi, on Wednesday approved relaxing the cap on spectrum holding by telcos, a move that is expected to aid mergers and acquisitions in the sector.
The Cabinet has also given telcos the option to extend the time period for payment of spectrum bought in auction to 16 years from the present 10 years. This is likely to help with the cash flow in the short to medium term, while adding ₹74,446 crore till 2034-35 to the government’s kitty due to no reduction in interest rates.
The relief measures, based on the recommendations by the Inter Ministerial Group on stressed assets in the telecom sector, will facilitate investments, consolidation and enhance ease of doing business, said an official release.
The cap on overall spectrum that can be held by an operator in a circle has been raised to 35% from the current 25%. In line with earlier recommendations of TRAI, the current cap of 50% on intra-band spectrum holding has also been removed.
Instead, there will be a cap of 50% on the combined spectrum holding in the sub-1 GHz bands (700 MHz, 800 MHz and 900 MHz bands). There will be no cap on individual or combined spectrum holding in the above 1 GHz band.
The government is hopeful that this move would encourage participation in future spectrum auctions.
‘Facilitate consolidation’
Rajan Mathews, director general, COAI said, “The new spectrum caps will facilitate consolidation in the industry – Reliance Jio-Reliance Communications and Idea-Vodafone.” However, the debt payment extension will have only minimal benefit unless the interest rate is also reduced, Mr. Mathews said.
He added that the systemic issues of the industry such as excessive taxes and levies of 30% or more remained unaddressed.
“With the restructuring of the deferred payment liability, the cash flow for the telecom service providers will increase in the immediate timeframe providing them some relief. Revising the limit for the spectrum cap holding will facilitate consolidation of telecom licensees and may encourage the participation in the future auction,” the government said.
“The telecom operators will now be able to trade in excess [subject to the prescribed time limit] as well as the current spectrum held by them with other telecom operators depending upon their current spectrum holdings,” said Niren Patel, partner, Khaitan & Co.
