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| Image By: Maxwell Ingham on Unsplash |
Relief arrived on Wednesday after a long wait, even as India's telecom sector laboured under the weight of an enormous regulatory burden. A deal to save the ailing sector was accepted by the Union cabinet. The Centre announced a slew of financial reforms, including sectoral liberalisation and procedural easing, as well as a dramatic shift in its long-held position on an issue that had roiled the industry in general and older telecom operators in particular: whether their adjusted gross revenues (AGR), to be shared with the government as part of a public-private pact, reached about two decades ago, should be shared with the government.
Although their numbers had already been damaged by a price battle led by the relatively recent entry, Reliance Jio, it was New Delhi's insistence that they must that punished older players with enormous bills on past dues and drove the finances of Vodafone-Idea (VI) and Bharti Airtel into a tizzy. The hardest hit was VI, which had been on the verge of collapsing, raising concerns that India might be left with an effective duopoly in a crucial infrastructure market. That threat has faded, for the time being, thanks to a reprieve on AGR dues, but perhaps more important is the term's formal redefinition, which now refers solely to telecom revenues.
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After our judiciary rejected the argument two years ago that they merely needed to part with a percentage of their telecom earnings, immediate relief has come in the form of a four-year suspension on the payments they owe the Centre. Significant liabilities have been pushed forward, which will increase VI's chances of survival, offer Airtel room to reclaim its previous levels of performance and relieve market leader Jio of its payment burden.
Although a write-off of AGR dues may have been overlooked by the government in its assessment of judicial rulings, something had to be done. Kumar Mangalam Birla, who just stepped down as chairman of VI, had even given the government his business group's interest in the corporation in order to keep it afloat. VI's calculus would have changed now that the strain on its cash flows had been alleviated. Surprisingly, once the term of forbearance expires, telecom businesses will be able to settle some of their debts with equity.
The interest rate on late licence and spectrum fees has been reduced, no bank guarantees will be sought for future spectrum auctions, the tenure of allocated airwaves has been extended by a decade to 30 years, allottees will be allowed to surrender this resource after 10 years, and airwave-sharing has been simplified, among other measures.
For international investors, India's automatic route cap on foreign direct investment in the sector has been lifted, allowing complete outside ownership of local enterprises without the need for prior approval. The breadth of these modifications demonstrates that the Centre is still receptive to companies suffering in industries that must thrive for the purpose of our economy's progress in an era of rising internet adoption. Overall, if its flexibility on policy matters has reassured the industry, its significant shift in what portion of the sector's activity it is entitled to be impressive.
It expresses acceptance of the fact that an agreement's spirit and letter may disagree. And, on occasion, the former serves our common good better.
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