Cabinet Recommendations: A positive step for telecom industry

The deferred payment liabilities and revision of spectrum cap from 25 to 35 per cent will help in consolidation of the telecom industry and also boosting cash flows

The Union Cabinet chaired by Prime Minister Narendra Modi has approved two key measures in telecom sector to facilitate investments and consolidation in the sector restructuring by deferring the payment liabilities of spectrum auction of telecom service providers and revising the limit of the cap for spectrum holding for telecom service providers from 25 to 35 per cent.

By giving one-time opportunity to opt for higher number of instalment (maximum 16 instalment) apart from currently permitted 10 instalments 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. The total amount received will be higher by Rs. 74,446.01 crore till 2034-35.

Based upon the recommendations of TRAI and Telecom Commission, the Cabinet has also approved the revision of limits of cap for spectrum holding from the current limit of 25% to 35%. The current intra-band cap is removed. Instead, there is a cap of 50% on the combined spectrum holding in the sub-1 GHz bands (700 MHz, 800 MHz and 900 MHz bands). There will be no cap for individual or combined spectrum holding in above 1 GHz band and the revised spectrum caps limits may be revisited after Final Acts of World Radiocommunication Conference (WRC) 2019.

The restructuring of the deferred payment liability will increase the cash flow for the telecom service providers whereas revising the limit for the spectrum cap holding will facilitate consolidation of telecom licensees and may encourage participation in future auction.

Speaking on Cabinet recommendations, Hemant Joshi, Partner, Deloitte India said, “Cabinet’s approval of recommendations is a huge positive step for the telecom industry. Government has considered the importance of telecom and the sustainability of the Industry. The increase in spectrum holding limit to 35% will be helpful considering the ongoing consolidation in the industry.”

“While the increase in repayment term from 12 to 16 years will reduce the immediate cash outflows to some extent, the fundamental issue of Rs. 7 lakh crore debt, race to the bottom on pricing of mobile services, significant annual servicing costs, declining revenues – need to be addressed comprehensively to make the sector viable,”

Commenting on recommendations, Niren Patel, Partner, Khaitan & Co said, “This relief package announced by the Union Cabinet 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. Each telecom operator has certain core circles that generates bulk of its revenues and this would enable them to strategically evaluate the need to either reduce their circle-wise businesses or close them entirely depending upon profitability and monetize their spectrum in underperforming circles. Profitability as well as reduction of debt levels will be further boosted by the Government allowing restructuring of Deferred Payment Liabilities for spectrum.”

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, 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 dated 20th February 2014,” added Patel.