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India:
Significant Reforms In The Indian Telecom Sector
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The Union Cabinet on September 15, 2021, approved major
structural as well as procedural reforms in the telecom sector with
the aim to protect and generate employment opportunities, promote
healthy competition, protect interests of the consumers, infuse
liquidity, encourage investment and reduce the regulatory burden on
Telecom Service Providers
(“TSPs“).1 This move
of the government coupled with the Supreme Court’s recent
judgement in the case of Union of India vs. Association of
Unified Telecom Service Providers of India2 on
September 1, 2021, comes as a respite to India’s financially
distressed telecom sector.
To understand the judgement, it is pertinent to discuss the
background of this case. The dispute stems from the Adjusted Gross
Revenue (“AGR“) dues owed by the TSPs to
the government in relation to their revenue sharing obligations
under license agreements with the government. The definition of AGR
in these license agreements has been a contentious issue for over
15 years. In 2003, the association of unified telecom service
providers of India filed a petition in the Telecom Disputes
Settlement and Appellate Tribunal
(“TDSAT“), alleging that AGR should only
relate to revenues directly arising out of licensed telecom
operations of the TSPs. However, the government argued that the
dues were payable on the overall revenue of the TSPs. The TDSAT
pronounced an order in favor of the TSPs and held that AGR would
include only revenue from license activities.3
This decision was appealed in the Supreme Court in 2011, wherein
the Court held that the TDSAT did not have the jurisdiction to
decide upon the validity of the terms and conditions of the license
including the definition of AGR and the order of the TDSAT was
accordingly set aside.4
Subsequently, the TSPs filed appeals against this ruling of the
Supreme Court. However, the Court refused to alter the definition
of AGR. The Supreme Court in its judgement dated October 24, 2019,
upheld the definition of AGR as contemplated in the license
agreements and stated that “the definition in the
agreement is unambiguous, clear, and beyond the pale of doubt, and
there is no confusion in the definition of gross revenue, which is
the basis for realisation of the licence fee. Licensees have made a
futile attempt to wriggle out of the definition in an indirect
method, which was rejected directly in the decision of 2011 between
the parties and it was held that these very heads form part of
gross revenue.”5
While the Court maintained its stance on no re-assessment of the
demands raised by the Department of Telecommunication
(“Dot“) in respect of the AGR dues, it
however, provided relief to the TSPs with regards to the payment of
these dues on September 1, 2021. It was held that the TSPs would be
allowed to make the payment of the said dues in 10 yearly
installments ending in March 2031. The Apex Court deemed it fit to
provide a staggered payment schedule to the TSPs considering their
financial stress as well as the banking sector’s involvement in
the same.
Following this judgement of the Supreme Court, the government
has announced substantial reforms as part of a relief package for
the telecom sector. The salient measures are as described
below:
- Rationalization of AGR: The highly debated issue
regarding the definition of AGR has finally been settled by the
government in favor of the TSPs. Non-telecom revenue has been
prospectively excluded from the definition of AGR. However, since
the application of the same is not retrospective, this reform will
not have any bearing on the past AGR dues of the companies. - Relaxation in bank guarantees to be furnished: The bank
guarantee requirements against license fee and other similar levies
has been reduced. Now, there are no requirements for furnishing
multiple bank guarantees in different licenced service areas in the
country. One bank guarantee would suffice for the purpose of the
fees and other levies. Further, no bank guarantees would be
required to secure instalment payments in spectrum auctions. - Removal of penalties and reduction of interest: From
October 1, 2021, any delayed payments of license fee or spectrum
usage charge will attract a reduced interest which is compounded
annually instead of monthly. Additionally, penalty and interest on
penalty has been removed. - 100% Foreign Direct Investment in telecom sector:
Earlier, the government’s approval was required for Foreign
Direct Investment (“FDI“) in the telecom
sector above the limit of 49%. Now, 100% FDI under the automatic
route has been permitted. - 4-year moratorium: As a result of the Supreme
Court’s recent judgement discussed above, a moratorium of up to
four years in annual payments of AGR dues has been approved with
the protection of the net present value of the due amount. The TSPs
that avail this moratorium will have the option to pay the interest
amount arising due to the said deferment of payment by way of
equity. The government may convert this equity at the end of the
moratorium period, guidelines for which will be finalized by the
Ministry of Finance. - Encouragement of spectrum sharing: TSPs are required to
pay spectrum usage charges for spectrum sharing under the relevant
DoT guidelines.6 However, these charges
hereafter would not apply to the spectrum acquired in future
spectrum auctions. Further, the tenure of spectrum has been
increased from 20 to 30 years and the surrender of spectrum will be
permitted after 10 years from spectrum auction. - Relaxation in compliance requirements: To promote ease
of doing business in India, the cumbersome requirement of licenses
under Customs Notification (1953) for wireless equipment has been
removed and replaced with self-declaration. Further, other measures
such as self know-your-customers has been permitted, paper customer
acquisition forms (“CAF“) are to be
replaced by digital data storage and warehouse audit of CAF will
not be required.
These measures7 will provide a stimulus to
the telecom industry. The reforms have been announced at a crucial
time for the industry and could be a game-changer for the TSPs.
Numerous amendments in license agreements, DoT and Telecom
Regulatory Authority of India’s notifications as well as DoT
guidelines would have to be made to implement these changes.
Footnotes
1.
https://pib.gov.in/PressReleseDetail.aspx?PRID=1755086
2.
https://main.sci.gov.in/supremecourt/2020/9887/9887_2020_32_1501_23776_Judgement_01-Sep-2020.pdf
3. (2007) 5 Comp LJ 308
(TelecomDSAT)
4. AIR 2012 SC 1693
5.
http://images.assettype.com/barandbench/import/2019/10/Adjusted-Gross-Revenue-judgment.pdf
6.
https://dot.gov.in/sites/default/files/Guidelines%20for%20Access%20Spectrum%20Sharing.pdf
7.
https://pib.gov.in/PressReleseDetail.aspx?PRID=1755086
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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