To boost the distressed telecom sector, the Union
Cabinet has introduced various reforms such as the exclusion of
non-telecom revenue from the definition of AGR, a moratorium on
payment of pending AGR dues, and 100% FDI under the automatic
route.

Introduction

Telecom Services Providers (TSPs), under the
licenses granting them the right to operate in India, are obligated
to share a percentage of their annual gross revenue
(AGR) with the government as a license fee. These
licenses define AGR broadly to include revenue generated from
telecom as well as non-telecom activities carried out by licensees.
However, certain TSPs disagreed with the view that AGR includes
revenue generated from non-telecom activities and chose to litigate
the matter before the Telecom Disputes Settlement and Appellate
Tribunal and the Supreme Court. During the pendency of this
litigation, the dues of some entities were not paid on the extended
definition of AGR (i.e. dues were not paid on the revenue component
from non-telecom activities). However, the Supreme Court affirmed
the view that revenue of TSPs from all sources should form part of
the calculation of AGR. Consequently, the Court directed the
telecom companies to pay their pending dues towards license fees,
along with penalty and interest. As a result, at the end of 2019,
the telecom industry was burdened with nearly INR 92,000 crore
(approx. USD 12 billion) in arrears, penalty and interest payments.
Notably, only 25% of this amount was the actual license fee due and
the remaining 75% of liability was on account of penalty, interest
and interest on the penalty.

In addition to the hardship imposed by this demand, the TSPs
have also endured bloated operational costs and amassed vast debt.
The telecom sector has seen a major consolidation and the market
has contracted from about twelve telecom operators to three.

To provide relief in the backdrop of the outstanding performance
of the telecom sector in meeting challenges faced during COVID-19,
the Union Cabinet approved a crucial relief package for the telecom
sector, in the form of major reforms, outlined in the Press Release of 15 September 2021
(Press Release). We discuss some of these reforms
and their impact below.

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