Telecom Reforms 2021 and the way forward for the industry
India is the world’s second-largest telecommunications market, with a subscriber base of 1.16 Billion. The sector has shown tremendous growth in the last two decades. It is expected to substantially contribute to Indian GDP as per a report by the GSM Association in collaboration with the Boston Consulting Group. Indian governments have been working to reform policies to assist telecom service providers in enabling easy market access to telecom equipment and a fair & proactive regulatory framework.
Moving ahead in this direction, the union cabinet led by the PM announced a slew of structural and process reforms in the telecom sector. Through these reforms, the government aims to protect and generate employment opportunities, promote healthy competition, protect the interests of consumers, infuse liquidity, encourage investment and reduce the regulatory burden on Telecom Service Providers (TSPs). The Cabinet acknowledged the sector’s contributions in facing the COVID-19 challenges like massive surge in data consumption, online education, work from home, virtual meetings, and people connecting through social media. The reforms are expected to boost 4G proliferation, infuse liquidity, and create an enabling environment for investments in 5G networks.
The structural reforms include,
- The rationalization of Adjusted Gross Revenue (AGR) with the exclusion of non-telecom revenues.
- Bank guarantee(BG) rationalization with a reduction of 80% in the BG requirements against license fees and other levies with one combined BG allowed for different licensed service areas(LSAs).
- Interest rate rationalization and penalty removal for delayed payments of License Fees and Spectrum Usage charges with the interest rate reduction of 2%.
- Removal of Bank Guarantee requirement for Spectrum auctions
- Spectrum tenure increased from 20 to 30 years, with the surrender of spectrum permitted 10 years after the spectrum is acquired in the auction.
- Removal of Spectrum Usage Charge and additional SUC of 0.5% applied on spectrum sharing to encourage spectrum sharing
- Permission is given to 100% FDI under automatic route to encourage investments with the application of existing safeguards
The Procedural reforms include,
- Fixing of Spectrum auction calendar to be held in Q4 of the financial year to allow telcos to plan better
- Self-declaration replaced the license requirements for wireless equipment under 1953 customs notification, promoting ease of doing business
- KYC reforms with the introduction of Self-KYC, E-KC @INR 1, and removal of KYC requirements for shifts between postpaid and prepaid.
- The shift of customer data storage to the digital mode eliminating the storage and audit requirements for the paper documents
- Easing the SACFA (Standing Advisory Committee on Radio Frequency Allocation) clearance for telecom towers
To address the liquidity requirements of the telecom service providers, the government has given a time of four years to pay dues arising out of the AGR judgment. The government has given an equity payment option for interest arising due to the postponement of the payment. This decision aims to provide relief by easing liquidity and cash flow. The decision will also help the banks having substantial exposure to the Telecom sector.
At face value, the reforms seem a very progressive step that will enable the expansion of the telecom service across the country. The amendments will help increase the confidence of investors and businesses in the procedures and operational mechanisms of the spectrum auctions. The proper implementation of the reforms will help improve the ease of doing business in the country. The reforms will allow debt-laden companies to raise capital through markets and increase tariffs for prepaid customers. The companies must accelerate network investments, stop subscriber losses, and eventually increase the average revenue per user (ARPU), which come with their fair share of challenges and uncertainties.
If companies opt for the moratorium option, the government will face revenue losses for the next four years. The government needs to make arrangements to cover those losses. Also, the equity option for deferred payment means that the government will face issues in offloading stakes if market conditions do not improve in the next four years. Like all the previous reforms, the government, in conjunction with the judiciary, must ensure that the laws are implemented and enforced to ensure the plan’s success.
Written by: Satish Chandrawanshi, IIMB 2020–22
