Cabinet Approves Relief Package For Telecom Sector

Indian telecom operators got a breather today as the Cabinet allowed extending the time for payment of spectrum liabilities and relaxing spectrum holding limits.

The Union Cabinet has approved restructuring of deferred payment liabilities to a period of 16 years from 10 years earlier, according to a media statement by the Press Information Bureau. This will improve cash flow for telecom service providers, it added.

Last year, an inter-ministerial group set up to recommend measures for easing financial stress in the telecom sector had suggest a longer spectrum payment period based on telecom operators' demands. The industry's top decision-making body, the Department of Telecom, had also approved the move in September 2017 after which the suggestions were sent to the cabinet for a final clearance.

The Indian telecom sector has been engaged in an aggressive price war since the launch of billionnaire Mukesh Ambani's Reliance Jio Infocomm Ltd. in 2016. Jio's disruptive pricing caused other operators to slash rates in an attempt to retain market share, at a time when operators were already reeling under significant debt.

The telecom sector has more than Rs 2.9 lakh crore deferred spectrum liability, according to data compiled by BloombergQuint. The Cabinet's nod means operators will have more time to pay this amount.

Currently, telecom operators pay half of the spectrum amount upfront, following which there is a two-year moratorium. The remaining half is paid in annual installments over ten years.

Also Read: Union Budget: Government Allocates Rs 10,000 Crore To Boost Telecom Infrastructure

Higher Spectrum Caps

The Cabinet also gave its nod to revised limits of spectrum holdings approved by the Telecom Commission in January.

Telecom companies can now hold a maximum of 35 percent of the spectrum in a particular circle from 25 percent earlier. The 50 percent cap on spectrum holdings in individual bands too has been done away with. This has been replaced with a 50 percent limit on combined spectrum holding in the 500 Mhz, 800 Mhz and 900Mhz airwaves. There will be also no cap for individual or combined spectrum holding in above 1GHz band.

“Revising the limit for the spectrum cap holding will facilitate consolidation of telecom licensees and may encourage the participation in the future auction,” according to a PIB release.

The approval will also benefit the planned merger of Vodafone Plc's Indian unit and Idea Cellular as the combined entity would've breached spectrum limits in five circles according to current merger and acquisition guidelines. Presently, a combined entity cannot hold more than 50 percent of the spectrum in each band individually and should have less than 25 percent of the airwaves allocated to all operators across bands and circles.

In its September meet, the commission had sought views on an inter-ministerial group's proposal for easier spectrum holding norms, as it would provide an exit path to loss-making mobile service providers and ease consolidation in the sector.

Watch this discussion with Jaideep Ghosh, partner at KPMG on what this means for the telecom sector.