Struggling Vodafone Gets Respite With Today's Big Telecom Reforms

The Union Cabinet today approved a relief package for cash-strapped telecoms sector including a four-year moratorium on airwaves payments due to the government, the telecom minister said.

The deferred payments cycle will begin from October 1, Telecom Minister Ashwini Vaishnaw said, giving debt-ridden Vodafone Idea - which previously said it runs the risk of a shutdown without government help - more time to pay dues.

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

Some of the other measures announced in the telecoms package include raising the tenure of airwaves held by firms to 30 years from the current 20 years, waiving the usage charge for airwaves acquired via future auctions, and completely free sharing of spectrum between carriers, Mr Vaishnaw said.

Bharti Airtel and Reliance Jio said the measures will boost growth in the telecoms industry. Vodafone Idea's owners, Britain's Vodafone Group and India's Aditya Birla Group, said the reforms will help unshackle the telecom sector.

The telecom sector ran into trouble in late 2016 with the entry of billionaire Mukesh Ambani's Reliance Jio, sparking a price war that has forced some rivals out of the market and turned profits into losses.

Mr Vaishnaw said the government was changing the contentious definition of adjusted gross revenue (AGR) to count only telecoms revenue.

India had long held that even companies' non-telecoms revenue was part of AGR, leading to a lengthy legal battle which culminated in 2019 with the Supreme Court siding with the government's view and leading to a bill of roughly $13 billion for wireless carriers.

All telecom reforms will be applied going forward and not retrospectively, Mr Vaishnaw said, which means carriers still have to settle billions of dollars in outstanding AGR payments to the government.

Respite For Vodafone Idea

The measures, which also include a four-year deferral in payments of AGR dues, will likely ease the cash crunch at Vodafone Idea.

The Supreme Court had directed companies to clear AGR dues by 2031.

Vodafone Idea, a combination of the India unit of Britain's Vodafone Group and domestic telecom firm Idea Cellular, has paid the government Rs 78.54 billion ($1.07 billion) in AGR dues, but still owes roughly 500 billion.

It is saddled with net debt of Rs 1.91 trillion and its billionaire chairman's resignation last month sparked fears that the country might be left with just two major carriers.

Mr Vaishnaw today said the government did not want a duopoly.

"We believe that there should be healthy competition in the sector. And for that there will be further reforms when the 5G spectrum is auctioned out ... so that more and more players can get into this sector," he said.

Bharti Airtel has said it paid dues estimated at Rs 180 billion and government figures show it owes a further 259.76 billion.

The newest carrier, Reliance Jio, has already paid its small share of AGR dues.

As part of the measures, the cabinet also allowed 100 per cent foreign direct investment in the sector via the automatic route, Mr Vaishnaw said, a move that will allow easy investment in the sector without separate government approvals.

"The relief comes just in time, and it will, at the very least, assist telecom companies in navigating the market," said Sonam Chandwani, Managing Partner at law firm KS Legal and Associates.