Struggling Vodafone Gets Respite With Today’s Big Telecom Reforms

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Vodafone Idea shares rose 2.9% after the government announced telecommunications reforms.

New Delhi:

The Union Cabinet today approved an aid package for the cash-strapped telecommunications sector, including a four-year moratorium on over-the-air payments owed to the government, the telecommunications minister said .

The deferred payment cycle will begin from October 1, Telecommunications Minister Ashwini Vaishnaw said, giving debt-ridden Vodafone Idea – which previously said it was at risk of shutdown without government help – more time to pay their contributions.

Shares of Vodafone Idea rose 2.9% on the news, while Bharti Airtel closed up 4.5% in a larger Mumbai market which closed up 0.8%.

Some of the other measures announced in the telecoms package include increasing the length of airwaves owned by companies to 30 years instead of the current 20 years, removing user fees for airwaves acquired through future auctions, and fully sharing. Free spectrum between operators, Mr. Vaishnaw mentioned.

Bharti Airtel and Reliance Jio said the measures will boost the growth of the telecommunications sector. The owners of Vodafone Idea, the British group Vodafone and the Indian group Aditya Birla, have said that the reforms will help unblock the telecommunications sector.

The telecommunications industry ran into trouble in late 2016 with the entry of billionaire Mukesh Ambani Reliance Jio, triggering a price war that forced some rivals out of the market and turned profits into losses.

Mr Vaishnaw said the government was changing the controversial definition of Adjusted Gross Income (AGR) to only count telecommunications revenues.

India has long argued that even non-telecom revenues from businesses were part of the AGR, which led to a lengthy legal battle that culminated in 2019 with the Supreme Court siding with the government and leading to a bill of about $ 13 billion for wireless operators.

All telecommunications reforms will be implemented in the future and not in retrospect, Vaishnaw said, which means operators still have to settle billions of dollars in unpaid AGR payments to the government.

Respite for the Vodafone idea

The measures, which also include a four-year deferral of AGR contribution payments, will likely alleviate the cash shortage at Vodafone Idea.

The Supreme Court had ordered companies to pay AGR contributions by 2031.

Vodafone Idea, a combination of the Indian unit of UK group Vodafone and national telecommunications company Idea Cellular, has paid the government 78.54 billion rupees ($ 1.07 billion) in AGR dues, but still owes around 500 billion dollars.

It is grappling with a net debt of Rs 1.91 trillion and the resignation of its billionaire president last month has raised fears that the country is left with just two major carriers.

Mr Vaishnaw said today that the government does not want a duopoly.

“We believe that there should be healthy competition in the sector. And for that, there will be further reforms when the 5G spectrum is auctioned … so that more and more players can enter this sector. “, did he declare.

Bharti Airtel said it has paid dues estimated at Rs 180 billion and government figures show it owes an additional 259.76 billion.

The newest carrier, Reliance Jio, has already paid its small share of AGR dues.

As part of the measures, the cabinet also allowed 100% of foreign direct investment in the sector through the automatic channel, said Vaishnaw, a move that will allow easy investment in the sector without separate government approvals.

“The relief comes just in time, and it will, at the very least, help telecommunications companies navigate the market,” said Sonam Chandwani, managing partner at KS Legal and Associates.

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