With the imminent threat of Vodafone Idea shutting down now receding, the government is most likely breathing a lot a lot easier considering that, had this occurred immediately after the Supreme Court ordered the telco to spend Rs 58,254 crore of AGR dues, the government was in danger of losing not just this amount—Vodafone Idea has paid Rs 7,854 crore of this—but also about Rs 61,671 crore that the telco owes by way of the deferred spectrum payments as per the auction guidelines, immediately after an upfront quantity is paid, telcos spend the rest in annual instalments.
In a variety of areas, which includes this column, Vodafone Idea’s deferred spectrum dues have been place at about Rs 150,000-160,000 crore in the previous. That quantity is derived from an arithmetical addition of the annual instalments it requirements to spend till 2034 whereas the Rs 61,671 crore quantity is the net present worth (NPV) of the dues as such, it is a more correct quantity to use.
But even though the quick threat is more than, it is not clear how quickly Vodafone Idea will be capable to completely compete with Bharti Airtel and RJio considering that, with it continuing to be money-starved, it merely can’t invest as a great deal on capex that is important for it to maintain upgrading its network. In the occasion, its closure can’t be ruled out either, in particular if it keeps losing prospects to Airtel and RJio. In which case, the government requirements to come across a way to delink its fortunes from these of person telcos like Vodafone Idea or even Airtel or RJio.
The government tying itself to the fortunes of telcos is also a undesirable concept from the point of view of policy. Right now, for instance, even though huge tech firms like Google and Facebook are keen on the government delicensing the E&V bands, the current telcos are keen that this be auctioned as, they argue, delicensing will imply the tech giants can come in with more affordable broadband web options applying the E&V bands. Even if, for the sake of argument, delicensing is a improved option for the nation, the government will come across it hard to take a policy selection if its fortunes are tied to these of person telcos.
So, when the next spectrum auction requires spot, early next year in all probability, the government ought to alter the guidelines from a aspect-upfront-rest-in-instalments model to a complete-upfront payment model. This will, of course, reduced the quantity the government can hope to get in a bid considering that the EMI strategy encourages telecom players—just as it does consumers—to bid a bit more liberally than they would otherwise. For the government, although, this is a improved option considering that there is no danger of not becoming capable to gather the cash when a telco goes belly up.
It is not clear if this is what the Union Budget is referring to as ‘Communications’ in the annexure on arrears of non-tax income, but this has jumped from Rs 16,203 crore in FY15—in earlier budgets, the item was labelled ‘Communications (License Fee) Receipts’—to Rs 113,878 crore in FY20, generating it clear the Centre has a lot at stake if a telco goes belly up.
If this is accomplished, the apparent query is regardless of whether telcos who bid will be capable to raise the whole cash upfront as opposed to just the 25-30% that they had to in the earlier dispensation. There is, on the face of it, no explanation for robust telcos not to be capable to raise the funds, more so if the government ultimately amends the guidelines so that the spectrum purchased can be hypothecated to banks and, ought to the firm default or go belly up, the banks can straight away sell this spectrum to some other telco.
This is one thing that has been talked of for numerous years—and lots of, which includes lenders, believed it had currently occurred!—but, as the RCom insolvency case at the NCLT tends to make clear, the matter is far from resolved. In the case of Aircel’s insolvency, the NCLT had authorized the resolution program which incorporated the sale of the spectrum, but this ran into some other hurdle. Meanwhile, with the government saying, in the RCom case, that the spectrum can’t be sold as it belongs to it, the matter will go to the Supreme Court considering that, no matter how the NCLT/NCLAT make a decision, either the government or the telcos will oppose it.
Apart from attempting not to perpetuate the hyperlink amongst the government’s dues and the fortunes of telcos, the government will—sooner rather than later—also need to have to take a selection on how to strengthen the fortunes of the sector by scrapping the licence charge/spectrum usage charge (LF/SUC) regime in any case, with spectrum becoming auctioned, there is no longer any justification for charging telcos LF/SUC which have been imposed when spectrum was offered out no cost. While it is accurate that there has been some improvement in the fortunes of telcos more than the previous handful of months thanks to tariff hikes, the Rs 260,000 crore deferred spectrum plus AGR dues tends to make it close to not possible for the sector to bounce back to wellness quickly, more so considering that the capex requirements are going to maintain on escalating to cater to 5G and other demands.
For numerous years, the government has refused to take a selection on this and, rather, looked for band-help options like a moratorium on spectrum/AGR payments offered the NPV of the burden remains unchanged, this is merely kicking the can down the road. With the government seemingly more capable to take tougher choices now—lower corporate tax prices, a new PLI scheme, fixed term contracts for labour and a new PSU policy—perhaps it will take a different look at the telecom sector. Indeed, when choices like scrapping of licence costs and spectrum usage charges are taken, it also becomes a lot easier to take choices like delicensing the E&V bands each will, as it takes place, strengthen India’s access to broadband mobile connectivity.