Finally, some Relief for India’s Debt Ridden Telecom Sector

The government approved a relief package for the stressed telecom sector, easing spectrum-holding caps and extending the payment period for spectrum acquired in auctions to 16 years from 10 years.

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The government approved a relief package for the stressed telecom sector, easing spectrum-holding caps and extending the payment period for spectrum acquired in auctions to 16 years from 10 years.

While the change in spectrum caps is expected to aid telecom sector consolidation, allowing operators to settle their dues to the government over a longer time period will boost cash flows of operators.

The earnings of telecom operators, grappling with a heavy debt load, have come under further pressure following the entry of Reliance Jio Infocomm Ltd in September 2016. The Mukesh Ambani-controlled company disrupted the telecom sector first through free services and later through ultra-cheap data tariffs, triggering a wave of telecom sector consolidation.

The cabinet approved raising the overall spectrum cap per operator in a telecom circle to 35% from the current 25%. It also scrapped a rule that restricted operators from holding more than 50% spectrum in a single band in a circle. The new norms have set a cap of 50% on the combined spectrum holding in the sub-l GHz bands in a circle.

With this change, Vodafone India Ltd and Idea Cellular Ltd, which are set to merge their operations, will not have to surrender spectrum in seven circles where they would have otherwise breached the caps as a combined entity.

This also potentially allows Reliance Jio to buy the rest of the spectrum owned by his brother Anil Ambani’s Reliance Communications Ltd (RCom), especially in the coveted 800MHz band.

If Reliance Jio were to buy all of RCom’s spectrum in the 800MHz band under the previous spectrum-holding norms, it would have breached caps in 11 telecom circles. In December, Reliance Jio said it would buy a majority of the wireless assets of Reliance Communications (RCom), which include 122.4MHz of 4G spectrum in the 800/900/1,800/2,100MHz bands.

“The easing of spectrum caps are in line with what the industry had demanded. This will help Vodafone and Idea, and also Reliance Jio in acquiring spectrum from RCom. Extending the time period for spectrum payments is good from cash flow perspective but it does not fix the real issues of the industry which has to pay almost 30% of its revenues as levies to the government,” said Rajan Mathews, director general of Cellular Operators Association of India (COAI).

The government will also give operators a one-time opportunity to opt for 16 installments for spectrum dues and “the increased installment is based upon the principle that the net present value of the payment due is protected as per respective notice inviting application for the auction of spectrum from 2012. The total amount received will be higher by Rs74,446.01 crore till 2034-35,” an official statement said.

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