India announces measures to prop up telecom sector; respite for Vodafone Idea

Reuters
New Delhi, Delhi, India Published: Sep 15, 2021, 07:10 PM(IST)

File photo Photograph:( Reuters )

Story highlights

Vodafone Idea shares rose 2.9 per cent on the news, while Bharti Airtel closed 4.5 per cent in a broader Mumbai market that closed 0.8 per cent higher

India’s federal cabinet on Wednesday approved an aid package for its cash-strapped telecommunications sector, including a four-year moratorium on radio wave payments owed to the government, the country’s telecommunications minister said.

The deferred payment cycle will begin in October. On January 1, Telecom Minister Ashwini Vaishnaw said at a press conference, giving Debt-burdened Vodafone Idea, which previously said it risks a shutdown without government help, more time to pay off bills. dues.

Vodafone Idea shares rose 2.9 per cent on the news, while Bharti Airtel closed 4.5 per cent in a broader Mumbai market that closed 0.8 per cent higher.

Bharti Airtel and Reliance Jio said the move will boost growth in the telecommunications industry. Vodafone Idea did not respond to a request for comment.

India’s telecoms sector struggled in late 2016 with the entry of billionaire Mukesh Ambani Reliance Jio, sparking a price war that forced some rivals to exit the market and turned profits into losses.

Vaishnaw said the government was changing the controversial definition of adjusted gross income (AGR) to count only telecommunications income.

India had long argued that even companies’ non-telecom revenue was part of AGR, leading to a lengthy legal battle that culminated in 2019 with the Supreme Court sided with government opinion and led to a hefty bill of approximately $ 13 billion for wireless carriers. .

All telecom reforms will apply in the future and not retroactively, Vaishnaw said, meaning that Indian operators have yet to settle billions of dollars in outstanding AGR payments to the government.

Respect for the idea of Vodafone

The measures, which also include a four-year deferral in the payment of AGR dues, will likely alleviate the cash crisis at Vodafone Idea.

The Supreme Court had ordered the companies to settle AGR quotas by 2031.

Vodafone Idea, a combination of Britain’s Vodafone Group’s Indian unit and the national telecommunications firm Idea Cellular, has paid the government $ 1.07 billion(78.54 billion rupees) in AGR installments, but still owes roughly 500 billion.

It has a net debt of 1.91 trillion rupees and the resignation of its billionaire president last month sparked fears that India could be left with just two major operators.

On Wednesday, Vaishnaw said the government did not want a duopoly.

"We believe that there must be healthy competition in the sector. And for that there will be more reforms when the 5G spectrum is auctioned … so that more and more players can enter this sector," said Vaishnaw.

Bharti Airtel has said he paid fees estimated at Rs 180 billion and government figures show he owes another Rs 259.76 billion.

India’s newest operator, Reliance Jio, has already paid its small share of AGR’s fees.

The cabinet also allowed 100 per cent foreign direct investment in the sector through the automatic route, Vaishnaw said, a move that will allow easy investment in the sector without independent government approvals.

The measures announced in the telecommunications package include increasing the tenure of radio waves in the hands of companies to 30 years from the current 20 years, eliminating the charge for use of radio waves acquired through future auctions and sharing the spectrum completely free to operators, Vaishnaw said.

"The relief comes just in time and, at the very least, it will help telecommunications companies navigate the market," said Sonam Chandwani, managing partner at the law firm KS Legal & Associates.

Read in App