Indian telecom sector reforms – An overview

The Union Cabinet has approved several structural and procedural reforms in the telecom sector starting from September 15, 2021. The reforms are likely to result in inflow of investment into the sector, and offering a huge relief to the struggling debt-ridden telecom service providers (TSPs).

The reforms are also in line with the Indian government’s vision for a robust network technology for the wide deployment of 4G and 5G technology to connecting 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.

A summary of the structural reforms and procedural reforms plus relief measures for TSPs, which aim to build the digital infrastructure, are outlined below:

Structural reforms

• Non-telecom revenue will be excluded on a prospective basis from the definition of adjusted gross revenue.
• The license agreements have been amended to reflect the rationalization of the bank guarantees. After the amendment, the required amounts of BGs have been reduced by approximately 80 percent.
• From October 1, 2021, delayed payments of LF/spectrum usage charge will attract interest rate of State Bank of India’s marginal cost of funds plus 2 percent instead of the former MCLR plus 4 percent; this interest will be compounded annually instead of monthly; and the penalty and interest on penalty has been removed.
• For auctions held, going forward, there will be no requirement for BGs to secure instalment payments. The requirement for the successful bidder to submit a financial bank guarantee of an amount equal to one annual instalment to securitize the instalment; and submit performance bank guarantee for roll out obligations, etc., has been dispensed with. Further, the DoT will also address the eligibility conditions for participation in the auction, so that the participants have sufficient financial capacity.
• For future auctions, the tenure of spectrum has been increased from 20 to 30 years.
• For spectrum acquired in future auctions, the surrender of spectrum will be permitted after 10 years for which prior intimation of one year is a mandate, and sub­sequently appropriate surrender fee will be charged.
• No SUC will be levied for spectrum acquired in future spectrum auctions.
• The conditions of minimum 3 percent weighted average SUC rate and SUC floor amount is also removed.
• Spectrum sharing will be encouraged, and the additional SUC of 0.5 percent for spectrum sharing will be removed.
• To encourage investment, 100 percent foreign direct investment under the automatic route will be permitted in the telecom sector, but all safeguards will apply. The consolidated foreign direct investment policy circular of 2020 has been amended to permit 100 percent FDI in the telecom sector under the automatic route, subject to the licensing, security, and any other terms as specified by the Department of Telecommunications. Further, the foreign investment in the telecom sector will also be subject to the condition of Press Note 3 dated April 17, 2020, wherein the cases requiring government approval will continue to be on the government route.

Procedural reforms

• Spectrum auctions will be held in the last quarter of every financial year.
• The cumbersome requirement of licenses under the 1953 Customs Notification for wireless equipment has been removed and is replaced with self-declaration.
• Self-Know Your Customers reforms will be permitted; and the E-KYC rate has been revised to Re. 1 only.
• The paper customer acquisition form is to be replaced with digitally scanned copies of the CAF and the same is to be maintained by the TSPs with all the necessary precautions. The scanned copies should be clearly readable/legible and the subscribers should be identifiable from the scanned photograph.
• 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 DoT will now accept data on a portal on self-declaration basis. The self-declaration for the SACFA clearance is required to indicate technical parameters like frequency, radiated power, emission, bandwidth, antenna parameters, etc. Upon clearance, applicants can download system-generated SACFA clearance from the Saral Sanchar portal of the DoT.

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

• 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 of the due amounts is duly protected.
  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.
• Option to TSPs to pay the interest amount arising due to the said deferment of payment by way of equity.
• The amount due toward 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 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 the cabinet heralds a new era of distinctive growth for India’s digitally powered economy.

Over the last few weeks, we are also hearing the changes that are being proposed as regards to the new Space Communication Policy, which is due to be released soon. The role of wireless space communication could also contribute to a huge surge of both customer base as well as revenues, as the focus will be shifting to the rural areas, which contribute to the major population base in India.

Having said that, it is pertinent to keep in mind that the reforms, welcome as they may be, are only applicable prospectively. Although the reforms have addressed the issue of cashflow, there has been no real reduction in the liabilities of the players, nor has the future revenue of the government been significantly impacted. Hopefully, these reforms will push telecom services to another level, which will allow the best of the global industry players entering the Indian market and providing their services, resulting in the existing operators investing more into innovation and offering better quality services.
(The article is co-authored by Rhea Sydney, Associate, from J. Sagar Associates, Advocates and Solicitors. The views expressed in this publication are personal and are not the views of the firm.)