After the resignation of Kumar Mangalam Birla as the chairman of Vodafone India, it had almost felt like that it was the end of the giant telecom sector. But with the vision and importance of protecting the telecom sector in India, the Indian government couldn’t sit idle and do nothing.
Thus, on Wednesday, the Union Cabinet had approved a crucial relief package or plan to provide immediate and much-needed relief to the ailing telecom sector. It is to be noted that given the reforms and provisions in the relief package, it will emphatically provide much-needed relief to the telecom companies in India.
The biggest beneficiary of the same will be Vodafone Idea and Bharti Airtel that were the most debt-laden telecom companies.
Vodafone- the debacle story
It is no news that Vodafone is severely losing subscribers. Thus, it can be rightfully stated that Vodafone is running on a crash crunch as its venture is incurring losses.
This has emphatically led to the accumulation of boatloads of debt that is drowning the company into the abyss of darkness. Coupled with their prerequisite debts, the telecom company is under huge payment obligations.
Here it is to be noted that the government had various crucial reasons to save the telecom sector, especially from monopoly. It is no news that Reliance Jio and Airtel hold the largest share of the telecom market.
This meant that if the Vodafone entity was to die, the duopoly in the telecom sector would have risen. Given the nature of the Indian economy and various repercussions for the consumers in the market, the government had to address the contentious issue.
The telecom sector issue
Telecom companies have to effectively pay spectrum fees to the government to get telecom rights in India and to use Indian airwaves. This helps the telecom sector to effectively facilitate internet or voice calls over a certain range of frequencies.
According to reports, the payments for the same were due in 2019. But given the contentious situation, the government had emphatically offered an extension. This was offered due to the very pertinent fact that the telecom companies were working arduously to trim the losses that they were incurring.
Thus, keeping the wellbeing of the sector in mind, the government had provided an effective extension to the companies to pay their obligations in full later in 2021.
But, with the pandemic ravaging the sector, the dream of a profit-making telecom sector was shattered. According to reports, the financial position of most of the telecom companies continued to deteriorate. But in the recent turn of events, the government has again deferred the payments by another 4 years.
The government’s new plan
The newer provision not only provides an extension in payment of dues but also effectively has altered the payment methods. According to the newer provisions, the telecom service providers can effectively pay the interest amount by way of equity.
This means that if the telecom giants are not able to pay back the dues, they can effectively offer the government part ownership of the company. This option can be opted for if the companies can’t pay up the interest in full. As a matter of fact, the government can effectively even choose to convert the entire obligation into equity.
The detestable problems that had plagued the sector
As aforementioned, the telecom giants have to pay spectrum charges in order to secure telecom rights or telecom licenses in India. But on top of it, the government had also included AGR rights. AGR rights gave the government the power to get a small cut from telecom revenues.
But the telecom operators strongly believed that the government’s cut should come only from the percentage of the revenues from the telecom business and nothing else. But according to the government, it wanted its fair cut from every business. This included incurring profits from the interest incomes, profits from selling old buildings, various other miscellaneous income. This was something that wasn’t sitting right with the telecom giants.
This led to disputes that took the matter to court. But, unfortunately for the telecom operators, the courts supported the government’s argument and thus, the AGR dues continued.
This had led to serious petitions by the telecom sectors to the government to effectively defer these dues. Thus, given the recent provisions, it can be rightly stated that the state has finally come around.
On top of it, the government is free to alter its AGR definition that will emphatically exclude non-telecom revenues while calculating Adjusted Gross Revenue. This can certainly help the Telcom sector.
Finally, in the last step of adjustments, the government has also removed the restriction on foreign investment. According to the newer regulations, foreign investors can effectively fully invest in the telecom sector without the government’s prior approval. Lastly, in good news for the company, which wants to secure rights to use spectrum, they can now effectively leverage these prized assets for about humungous 30 years. This is an alteration from the earlier 20 years.
Are the renewed provisions enough?
It can be rightly stated that the newer provisions are crucial but not enough to pull a debt-laden entity like Vodafone out of the troubled waters. This is due to the fact that given the condition of the telecom giant, it certainly needs more than time. It is in desperate need of capital. Thus, will the governments’ latest provisions help the sector? It is something only time will tell.
Edited by Sanjana Simlai.