India:

Big Reforms For The Indian Telecom Sector

The Indian Union Cabinet
(“Cabinet”), aiming to protect and
generate employment opportunities, promote healthy competition,
protect consumer interests, infuse liquidity, encourage investment,
and reduce regulatory burden on Telecom Service Providers
(“TSPs”), has approved several
structural and procedural reforms
(“Reforms”) in the Telecom sector on
September 15, 2021. The Reforms will most likely lead to an inflow
of investment into the sector thereby offering a welcome relief to
the TSPs that are struggling under staggering amounts of debt
pursuant to the lengthy legal battle with the Supreme Court siding
with the government’s view of Adjusted Gross Revenue.

The Reforms have also been announced to support the vision of a
robust network technology for the wide deployment of 4G & 5G
technology to connect all regions of India. This vital connect
will, hopefully, prompt all users nationwide to choose the
indigenously developed technology, creating an enabling environment
for investment in 5G networks.

The nine structural reforms and five procedural reforms plus
relief measures for TSPs, which aim to build the digital
infrastructure, are outlined below.

Structural Reforms

1. Rationalization of Adjusted Gross Revenue
   (“AGR”):  Non-telecom revenue
   will be excluded on a prospective basis from the definition of
   AGR.




2. Bank Guarantees (“BGs”)
   rationalized: With the huge reduction in BG requirements (80%)
   against License Fee (“LF”) and other
   similar Levies, one BG will suffice, erasing the need for the
   customary multiple BGs in different licensed service areas
   (“LSAs”) in the country. .




3. Interest rates rationalized/penalties removed: From October 1,
   2021, delayed payments of LF/Spectrum Usage Charge
   (“SUC”) will attract interest rate of
   State Bank of India’s Marginal Cost of Funds
   (“MCLR”) plus 2% instead of the former
   MCLR plus 4%; this interest will be compounded annually instead of
   monthly; and the penalty and interest on penalty will be
   removed.




4. For auctions held henceforth, no BGs will be required to secure
   instalment payments.




5. In future auctions, the tenure of spectrum has been increased
   from 20 to 30 years.




6. For spectrum acquired in future auctions, the surrender of
   spectrum will be permitted after 10 years.




7. No SUC will be levied for spectrum acquired in future spectrum
   auctions.




8. Spectrum sharing will be encouraged, and the additional SUC of
   0.5% for spectrum sharing removed.




9. To encourage investment, 100% Foreign Direct Investment
   (“FDI”) under the automatic route will
   be permitted in the Telecom Sector, but all safeguards will
   apply.

Procedural Reforms

1. Spectrum auctions will be held in the last quarter of every
   financial year.




2. The cumbersome requirement of licenses under the 1953 Customs
   Notification for wireless equipment has been removed and is
   replaced with self-declaration.




3. Self-Know Your Customers (“KYC”)
   reforms will be permitted; and the E-KYC rate has been revised to
   Rupee one only.




4. The paper Customer Acquisition Forms
   (“CAF”) will be replaced by digital
   storage of data.




5. The Standing Advisory Committee’s clearance on Radio
   Frequency Allocation for clearance for installation of mobile
   towers and allocation of radio frequency waves has been streamlined
   and the Department of Telecommunications
   (“DoT”) will now accept data on a
   portal on self-declaration basis. Portals of other agencies (such
   as Civil Aviation) will be linked with the DoT Portal.

To address the liquidity requirements of TSPs, the Cabinet
approved the following for all TSPs:

1. Moratorium/deferment of up to four years in annual payments of
   dues arising out of the AGR judgement with the stipulation that the
   Net Present Value (“NPV”) of the due
   amounts are duly protected.




2. Moratorium/deferment on due payments of spectrum purchased in
   past auctions (excluding the auction of 2021) for up to four years
   with NPV protected at the interest rate stipulated in the
   respective auctions.




3. Option to TSPs to pay the interest amount arising due to the
   said deferment of payment by way of equity.




4. The amount due towards deferred payment may be converted to
   equity, at the option of the Government, at the end of the
   Moratorium/deferment period. The guidelines for the same will be
   finalized by the Ministry of Finance.

Such relief measures are intended to ease liquidity and improve
cash flow of the TSPs and will likely reduce default risks at banks
exposed to the telecom sector. The Reforms are also indicative of
the Indian government’s intent to ensure sustainable growth
and healthy competition in the telecom sector. Stakeholders are
hopeful that the pathbreaking package of reforms announced by
Cabinet herald a new era of distinctive growth for India’s
digitally powered economy.

The pandemic has certainly pushed the lawmakers into fast track,
considering that on one hand companies are incurring losses caused
due to the pandemic and on the other hand several opportunities
have opened, especially in the telecom sector, with focus on better
connectivity and bandwidth. Hence, quality of service, has taken a
pole position. Hopefully, these reforms will push telecom services
to another level, which will allow the best of the global industry
to provide their services in India, resulting in the existing
operators investing more into innovation and offering better
quality services. Surely, we are looking at a boom for the telecom
sector this decade.

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