Cabinet approves relief measures for telcos

New Delhi: In a bid to provide relief to financially stressed telecom sector, the Cabinet has allowed telcos to pay for spectrum over 16 years instead of 10 years and permitted them to hold more airwaves.

It also relaxed caps on holding spectrum, helping ongoing mergers like that between Vodafone and Idea as the combined entity would have breached the current limits in certain circles or telecom zones.

The spectrum cap relaxation would also help billionaire Mukesh Ambani's Reliance Jio to acquire spectrum of Reliance Communications in certain bands.

The decision of the Cabinet headed by Prime Minister Narendra Modi came after a majority of telecom companies flagged their concerns over severe financial stress facing the sector due to intense competition unleashed by Reliance Jio's rock-bottom tariffs.

An official statement issued after the Cabinet meeting stated that the government will receive Rs 74,446.01 crore more as a result of deferring spectrum payments till 2034-35.

It did not give the basis of the higher payment and some industry watchers presumed that it could be a result of interest and other fees being levied on the payments due. There was also no official briefing on the Cabinet decision.

It wasn't immediately known if the Cabinet had taken a view on the recommendation of an Inter-Ministerial Group to ease the interest payment on penalties linked to licence fee and spectrum usage charges.

The Cabinet, the statement said, approved "two key measures to facilitate investments, consolidation in the sector and enhancing ease of doing business".

"These include restructuring the deferred payment liabilities of spectrum auction of telecom service providers and revising the limit of the cap for spectrum holding for telecom service providers," it said.

Operators will be given one-time option of choosing to increase the number of installments to a maximum of 16 for paying for spectrum.

"The increased instalment is based upon the principle that the Net Present Value (NPV) of the payment due is protected as per respective notice inviting application for auction of spectrum from 2012," it said. "The total amount received will be higher by Rs 74,446.01 crore till 2034-35."

Also, the Cabinet allowed companies to hold up to 35 per cent of all the available spectrum or airwave in a circle or telecom zone. The present limit for such holding is 25 per cent.

It also removed the current intra-band cap. Instead, an operator will be allowed to hold no more than 50 per cent of the total available spectrum in sub-1 gigaHertz bands of 700 MegaHertz, 800 MHz and 900 MHz.

"There will be no cap for individual or combined spectrum holding in above 1 GHz band," the statement said.

Stating that the cap removal follows recommendation of the sector regulator TRAI, it said the revised spectrum cap limits may be revisited after Final Acts of World Radiocommunication Conference (WRC) next year.

The move will facilitate consolidations as well as mergers and acquisitions in the sector.

"TRAI had recommended revision in the existing limits of cap for spectrum holding taking into consideration the technological advancement, efficient use of spectrum, measures to facilitate consolidation etc," the statement said.

Commenting on the decision, Cellular Operators Association of India (COAI) director general Rajan Mathews said that while the move to relax spectrum cap will help in consolidation and time extension would ease cash flow issues, but these were like "short term band-aids".

Long-term systematic issues have not been addressed and they need to be addressed quickly before more companies get into financial problems, he said.

The financial stress in the sector has seen Reliance Communication sell assets to Reliance Jio while Vodafone and Idea have decided to merge to create a stronger balance sheet.

Market leader Airtel first took over Telenor and then Tata Group's consumer mobile business.

Aircel, the country's fifth largest mobile phone operator, has filed for voluntary bankruptcy.

With the twin decisions, the government hopes the cash flow for the telecom service providers will increase in the immediate time-frame providing them some relief. Revising the limit for the spectrum cap holding will facilitate consolidation of telecom licensees and may encourage the participation in the future auctions.

Niren Patel, Partner at Khaitan & Co, said the relief package announced today is a much needed policy change required to boost generation of cash flows for telecom companies in India.

"The telecom operators will now be able to trade in excess (subject to the prescribed time limit) as well as the current spectrum held by them with other telecom operators depending upon their current spectrum holdings," he said.

He added that the next procedural changes that the government should consider to further boost the telecom sector are easing the process of obtaining approval from the DoT (providing a fixed timeline for grant of DoT approval upon receipt of the NCLT order), better functioning of WPC and SACFA and providing flexibility in complying with MRO and EMF obligations/ procedures by amending the Telecom Merger and Acquisition Guidelines.