Cabinet approves reforms in the telecom sector, spells joy for distressed operators

The union cabinet on Wednesday approved a set of positive reforms in the telecom sector which has been sailing in troubled waters for a long time now. These reforms are aimed at protecting and generating employment opportunities, promoting healthy competition, protecting the interests of consumers, infusing liquidity, encouraging investment and reducing the regulatory burden on Telecom Service Providers (TSPs).

The telecom sector has played a key role in meeting COVID-19 challenges, with a huge surge in data consumption, online education, work from home, virtual meetings etc., the reform measures will further boost the proliferation of broadband and telecom connectivity. The Cabinet decision realises the Prime Minister’s vision of a robust Telecom Sector with inclusive development and bringing the marginalized areas into the mainstream and universal broadband access to connect the unconnected. The package is divided into 3 sets of reforms viz. Structural, Procedural and Financial reforms, the details of each are enlisted below.

Structural reforms:

• Rationalization of Adjusted Gross Revenue:  Non-telecom revenue will be excluded on prospective basis from the definition of AGR.
• Bank Guarantees (BGs) rationalized: Huge reduction in BG requirements (80%) against License Fee (LF) and other similar Levies. No requirements for multiple BGs in different Licenced Service Areas (LSAs) regions in the country. Instead, One BG will be enough.
• Interest rates rationalized/ Penalties removed: From 1st October, 2021, Delayed payments of License Fee (LF)/Spectrum Usage Charge (SUC) will attract interest rate of SBI’s MCLR plus 2% instead of MCLR plus 4%; interest compounded annually instead of monthly; penalty and interest on penalty removed.
• For Auctions held henceforth, no BGs will be required to secure instalment payments. Industry has matured and the past practice of BG is no longer required. 
• Spectrum Tenure: In future Auctions, tenure of spectrum increased from 20 to 30 years.
• Surrender of spectrum will be permitted after 10 years for spectrum acquired in the future auctions.
• No Spectrum Usage Charge (SUC) for spectrum acquired in future spectrum auctions.
• Spectrum sharing encouraged- additional SUC of 0.5% for spectrum sharing removed.
• To encourage investment, 100% Foreign Direct Investment (FDI) under automatic route permitted in Telecom Sector. All safeguards will apply.

Procedural reforms:

• Auction calendar fixed – Spectrum auctions to be normally held in the last quarter of every financial year.
• Ease of doing business promoted – cumbersome requirement of licenses under 1953 Customs Notification for wireless equipment removed. Replaced with self-declaration.
• Know Your Customers (KYC) reforms: Self-KYC (App based) permitted. E-KYC rate revised to only One Rupee. Shifting from Prepaid to Post-paid and vice-versa will not require fresh KYC.
• Paper Customer Acquisition Forms (CAF) will be replaced by digital storage of data. Nearly 300-400 crore paper CAFs lying in various warehouses of TSPs will not be required. Warehouse audit of CAF will not be required.
• SACFA clearance for telecom towers eased. DOT will accept data on a portal based on self-declaration basis. Portals of other Agencies (such as Civil Aviation) will be linked with DOT Portal.

Financial reforms:

• Moratorium/Deferment of upto four years in annual payments of dues arising out of the AGR judgement, with however,  by protecting the Net Present Value (NPV) of the due amounts being protected.
• Moratorium/Deferment on due payments of spectrum purchased in past auctions (excluding the auction of 2021) for upto four years with NPV protected at the interest rate stipulated in the respective auctions.
• Option to the TSPs to pay the interest amount arising due to the said deferment of payment by way of equity.
• At the option of the Government, to convert the due amount pertaining to the said deferred payment by way of equity at the end of the Moratorium/Deferment period, guidelines for which will be finalized by the Ministry of Finance.