Cabinet relief package for telecom sector to attract investment, enhance ease of doing business

The Union Cabinet gave its nod to a relief package for the stressed telecom sector in India. During its meeting on Wednesday, the government agreed to allow more time to the telecom operators to pay for the spectrum bought in auctions, and relax the spectrum holding limit for telecom companies.
 
"The Union Cabinet chaired by Prime Minister Narendra Modi has approved two key measures in the telecom sector to facilitate investments, consolidation in the sector, and enhancing ease of doing business. These include restructuring the deferred payment liabilities of the spectrum auction of telecom service providers and revising the limit of the cap for spectrum holding for telecom service providers," an official statement said.
 
According to the new decision, the telecom operators will have a one-time opportunity to pay for the spectrum bought in auction within 16 years instead of the present limit of 10 years. Till now, a portion of spectrum auction amount was taken as upfront payment by the Department of Telecom (DoT). The balance, after a two-year moratorium, used to be paid out in 10 annual instalments.
 
The government expects to receive more than Rs 74,446 crore from this move by 2034-35. Restructuring the deferred payment liability will increase the cash flow for the telecom service providers in the immediate timeframe, providing them some relief.
 
The Cabinet, based on recommendations from the Telecom Commission and Trai, has agreed to remove every ceiling for individual or combined spectrum holding in above 1 GHz band. A cap of 50 per cent has been imposed on combined holding of sub-1GHz bands. The overall spectrum cap is revised from the current limit of 25 per cent to 35 per cent, a government statement said.
 
The revised spectrum caps limits may be revisited after Final Acts of World Radio-communication Conference (WRC) 2019. Revising the limit for spectrum holding is likely to facilitate consolidation of telecom operators and may encourage their participation in future auctions.
 
These decisions were taken on the basis of recommendations from the Inter-Ministerial Group (IMG) on the telecom sector. The group was formed in 2017 to come up with policy reforms and strategic interventions for the telecom sector, which has been going through a rough patch. The sector has been battered with decline in tariffs, falling profitability, and rising debt. Predatory pricing from new entrant Reliance Jio had made matters worse for other players.
 
The IMG had held eight meetings over a period of several months, but in its recommendations it had stayed away from suggesting overly disruptive reforms. Instead, its recommendations focused on easing the short-term pain points to give the sector time to rework its investments and business strategy.
 
The Indian telecom industry, which is locked in an intense tariff war, owes a staggering Rs 4.6-lakh crore to various financial institutions and banks. At the same time, large operators have been flagging pressure on revenue and profitability, blaming the rock-bottom data tariffs and free offerings of newcomer Reliance Jio for deteriorating financial health of the sector.
 
Telecom operators have traded charges on multiple occasions, blaming each other for the sector's financial difficulties. Reliance Jio accused incumbent operators of milking the sector using borrowed money while older players (Airtel, Vodafone and Idea) blamed free voice and data offering by the Mukesh Ambani's telecom firm for bleeding the sector.