The Indian telecom sector has needed modifications within its regulatory framework to develop a robust infrastructure, promote healthy competition and provide broadband access across the country, including the marginalized areas. The Government has recently announced relief packages in the form of substantial reforms for the telecom sector with the intended objective of increasing employment opportunities, improving the ease of doing business, boosting the infusion of liquidity, increasing foreign investment, and reducing the regulatory burdens borne by Telecom Service Providers (“TSP”)^[1].

1.    Rationalization of AGR.

The most significant relief to the sector was an amendment to the Unified License Agreement for Adjusted Gross Revenue (“AGR”). This amendment to the Unified License Agreement for AGR dated October 25, 2021^[2] made a significant change to the exorbitant license fee that was payable by the telecom sector for carrying out operations.

Any TSP who requires a telecom license needs to pay 8% of its AGR in the form of a license fee. However, the ambit of the AGR was unclear and has been subject to adjudication in the past. The settled interpretation for the scope of AGR included revenue from core telecom activities, supplementary services, sharing of infrastructure, and other miscellaneous revenue (including interest, dividends, revenue from consultancy services).^[3] This wide ambit imposed a hefty burden on TSPs as since non-core telecom activities were also subject to the license fees.

With the present reforms, the Union Cabinet has rationalized the definition of AGR and has excluded non-telecom revenue from its ambit. By the amendment^[4], it is clarified that (i) revenue from operations other than telecom activities/operations, (ii) revenue from activities under a license/ permission issued by the Ministry of Information and Broadcasting, (iii) receipts from the Universal Service Obligation Fund, and (iv) other forms of income specified in Annexure VIII introduced by the amendment (i.e., income from dividend and interest, capital gains on account of profit of sale of fixed assets and securities, gains from foreign exchange rate fluctuations, income from property rent, insurance claims, bad debts recovered, excess provisions written back) are excluded from the ambit of AGR. This would substantially lower the burden faced by TSPs.

However, it is worth noting that the amendment’s application will be on a prospective basis; hence the reform will not affect past AGR dues of TSPs.

2.    4-year moratorium on license fees and spectrum charges.^[5]

TSPs have been granted a moratorium on the annual payments of (i) dues arising out of the AGR Ruling^[6] (protecting the NPV Net Present Value) and (ii) spectrum payments from past auctions excluding the 2021 auction. This would provide TSPs with a period of relief to improve their cash flow, obtain investments and invest in innovative technology. They have been given the additional option to pay the interest amount due by way of equity.

3.    Relaxations in bank guarantees.^[7]

The requirement of multiple bank guarantees against license fees by TSPs have been reduced to a single bank guarantee. In addition, no more bank guarantees would be required for the purpose of securing instalments in spectrum auctions^[8]. However, it is clarified that bank guarantees submitted in respect of (i) any court order, (ii) under a Corporate Insolvency Resolution Process, or (iii) past auctions, will continue. The amendments also reduce the interest amount for delayed payments of License Fees and Spectrum Usage Charges. Penalties and interest on penalties have been removed altogether.

4.    FDI Liberalisation.^[9]

As per the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, 100% foreign investment was permitted in the telecom sector subject to government approval in case of a foreign inflow of above 49%.

The reforms now permit upto 100% foreign investment in the telecom sector, entirely under the automatic route and there is no requirement to obtain prior government approval. The amendment is in line with the objective of attracting investments of up to USD 100 billion in the digital communications sector. Foreign participation in the sector will enable innovation, higher competition and increased employment opportunities. This is subject to certain conditions, including the requirement to observe licensing and security conditions set out by the Department of Telecommunications from time to time and compliance with the applicable foreign investment norms. It is also worth noting that investment from countries sharing a land border with India will continue to require government approval.

5.    Spectrum Usage Charges.^[10]

As per the previous framework of the Department of Telecommunications, the licensees paid a Spectrum Usage Charge (SUC) of 3-5% of the AGR and an additional 0.5% of the AGR  for spectrum sharing.

The reforms have removed these charges altogether on spectrum acquired on future auctions and with relation to spectrum sharing. In addition, the tenure of the spectrum has been increased from 20 to 30 years (without any change to the tenure of spectrum acquired in earlier auctions). Also, surrendering of the spectrum will be permitted after 10 years from the spectrum auction. These changes will be effective prospectively. The liberalisation of spectrum usage and spectrum sharing allows for further investment into the sector, reducing the operational costs.

These reforms are likely to boost the expansion and penetration of broadband and telecom connectivity throughout all parts of India and will pave the way for greater foreign participation. The effect of the reforms is likely to mitigate the debt burdens and hurdles in the industry and is definitely a game-changer for TSPs in the country.

6.    Procedural Reforms.

The relief package also introduced a number of procedural reforms including:

1. Fixed spectrum auctions, which are to be held in the last quarter of every financial year.^[11]
2. Reforms to the Know Your Customers (KYC) requirements which can now take place by Self-KYC using an app. The E-KYC rate has also been revised to only One Rupee. Further, Shifting from Prepaid to Post-paid and vice-versa will not require fresh KYC.^[12]
3. Customer Acquisition Forms (CAF) which were required to be prepared physically can now be digital.^[13]
4. Clearance from SACFA (or the Standing Advisory Committee for Frequency Allocation for telecom towers has been eased.^[14]

 

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[1] Press Note titled Cabinet Approves Major Reforms in Telecom Sector dated September 15, 2021 [Available at: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1755086]

[2] Amendment to the Unified License Agreement for Adjusted Gross Revenue (AGR) dated October 25, 2021 [Available at: https://dot.gov.in/sites/default/files/AGR%20Amendment.pdf?download=1]

[3] What constitutes AGR has been subject to adjudication and this wide view finds support in the Supreme Court judgement, Union of India vs. Association of Unified Telecom Service Providers of India [2020 SCC OnLine SC 703]

[4] This was done by way of introducing a concept known as AGpR or Applicable Gross Revenue. See Amendment to the Unified License Agreement for Adjusted Gross Revenue (AGR) dated October 25, 2021 [Available at: https://dot.gov.in/sites/default/files/AGR%20Amendment.pdf?download=1].

[5] Office Memorandum issued by the Ministry of Finance, Department of Economic Affairs (IPP Division), Govt. of India (F.No.3/2/2021-PPU) dated October 13, 2021 [Available at: Pg. 102, https://dot.gov.in/sites/default/files/Telecom%20Reforms%202021-booklet%20combined%20as%20on%2003112021_0.pdf]

[6] Union of India vs. Association of Unified Telecom Service Providers of India [2020 SCC OnLine SC 703]

[7] See notifications relating to Bank Guarantee Reforms [Available at: Pg.66, https://dot.gov.in/sites/default/files/Telecom%20Reforms%202021-booklet%20combined%20as%20on%2003112021_0.pdf]

[8] See Office Memorandum by the Ministry of Communications, Department of Telecommunication, Wireless Planning & Coordination (WPC) Wing (No.: L- 14047/08/2021-NTG) dated October 8, 2021 [Available at: Pg.90, https://dot.gov.in/sites/default/files/Telecom%20Reforms%202021-booklet%20combined%20as%20on%2003112021_0.pdf]

[9] Chapter – 3 of the booklet on Telecom Reforms 2021, [Available at: https://dot.gov.in/sites/default/files/Telecom%20Reforms%202021-booklet%20combined%20as%20on%2003112021_0.pdf]

[10] See Office Memorandum by the Ministry of Communications, Department of Telecommunication, Wireless Planning & Coordination (WPC) Wing (No.: L- 14047/08/2021-NTG) dated October 8, 2021 [Available at: Pg.90, https://dot.gov.in/sites/default/files/Telecom%20Reforms%202021-booklet%20combined%20as%20on%2003112021_0.pdf]

[11] See Office Memorandum by the Ministry of Communications, Department of Telecommunication, Wireless Planning & Coordination (WPC) Wing (No.: L- 14047/08/2021-NTG) dated October 8, 2021 [Available at: Pg.90, https://dot.gov.in/sites/default/files/Telecom%20Reforms%202021-booklet%20combined%20as%20on%2003112021_0.pdf]

[12] See Chapter – 1 of the booklet on Telecom Reforms 2021, [Available at: https://dot.gov.in/sites/default/files/Telecom%20Reforms%202021-booklet%20combined%20as%20on%2003112021_0.pdf]

[13] See Chapter – 5 of the booklet on Telecom Reforms 2021, [Available at: https://dot.gov.in/sites/default/files/Telecom%20Reforms%202021-booklet%20combined%20as%20on%2003112021_0.pdf]

[14] See Chapter – 7 of the booklet on Telecom Reforms 2021, [Available at: https://dot.gov.in/sites/default/files/Telecom%20Reforms%202021-booklet%20combined%20as%20on%2003112021_0.pdf]