India: Big reforms for the Indian telecommunications sector

The Indian Union Cabinet (“Cabinet“), aimed at protecting and generating employment opportunities, promoting healthy competition, protecting consumer interests, injecting liquidity, encouraging investment and reducing the regulatory burden on telecommunications service providers ( “FST“), Approved several structural and procedural reforms (“Reforms“) in the telecommunications sector on September 15, 2021. The reforms will most likely result in an influx of investment in the sector, offering welcome relief to TSPs who are grappling with huge debts due to the long legal battle with the The Supreme Court shares the government’s view on adjusted gross income.

The reforms were also announced to support the vision of robust network technology for the wide deployment of 4G and 5G technology to connect all regions of India. This vital connection will hopefully inspire all users across the country to choose locally developed technology, thus creating an environment conducive to investing in 5G networks.

The nine structural reforms and five procedural reforms as well as relief measures for TSPs, which aim to build digital infrastructure, are described below.

Structural reforms

1. Rationalization of adjusted gross sales (“AGR”): Non-telecom revenues will be prospectively excluded from the definition of the AGR.
2. Bank guarantees (“BG”) Streamlined: with the huge reduction in BG requirements (80%) compared to license fees (“LF“) and other similar direct debits, a single BG will suffice, eliminating the need for the usual multiple BGs in different authorized service areas (“LSA”) in the countryside. .
3. Rationalized interest rates / penalties eliminated: from October 1, 2021, deferred payments of LF spectrum usage fees /JUICE”) Will attract the interest rate of the marginal cost of funds of the State Bank of India (“MCLR”) Plus 2% instead of the old MCLR plus 4%; this interest will be compounded annually instead of monthly; and the penalty and penalty interest will be waived.
4. For auctions held now, no BG will be required to secure installment payments.
5. In future auctions, the spectrum duration has been reduced from 20 to 30 years.
6. For the spectrum acquired in future auctions, the restitution of the spectrum will be authorized after 10 years.
7. No SUC will be charged for spectrum acquired in future spectrum auctions.
8. Spectrum sharing will be encouraged and the additional 0.5% SUC for spectrum sharing removed.
9. To encourage investment, 100% foreign direct investment (“IDE”) under the automatic route will be permitted in the telecommunications sector, but all warranties will apply.

Procedural reforms

1. Spectrum auctions will be held in the last quarter of each fiscal year.
2. The onerous licensing requirement under the 1953 Customs Notification for wireless equipment has been removed and replaced with self-declaration.
3. Do you know your customers (“KYC”) Reforms will be allowed; and the E-KYC rate has been revised to one rupee.
4. Paper customer acquisition forms (“CAF”) will be replaced by digital data storage.
5. The authorization of the Standing Advisory Committee on Radio Frequency Allocation for the authorization to install mobile towers and the allocation of radio waves has been streamlined and the Department of Telecommunications (“Point”) Will now accept data on a portal on a self-report basis. Portals of other agencies (such as civil aviation) will be linked to the DoT portal.

To meet the liquidity needs of TSPs, Cabinet has approved the following for all TSPs:

1. Moratorium / postponement of up to four years in the annual payments of contributions arising from the AGR judgment with the stipulation that the net present value (“VAN») Sums due are duly protected.
2. Moratorium / deferral on payments due for spectrum purchased in past auctions (excluding 2021 auction) for up to four years with NPV protected at the interest rate stipulated in the respective auctions.
3. Option for TSPs to pay the amount of interest resulting from said deferred payment on an equity basis.
4. The amount due under the deferred payment may be converted into equity, at the option of the government, at the end of the moratorium / deferment period. The guidelines in this regard will be finalized by the Ministry of Finance.

These relief measures aim to facilitate liquidity and improve TSP cash flow and will likely reduce the risk of default of banks exposed to the telecommunications sector. The reforms are also indicative of the Indian government’s intention to ensure sustainable growth and healthy competition in the telecommunications sector. Stakeholders hope the breakthrough reform package announced by Cabinet heralds a distinctive new era of growth for India’s digital economy.

The pandemic has certainly pushed lawmakers to step up, given that on the one hand companies are suffering losses due to the pandemic and on the other hand several opportunities have opened up, especially in the telecommunications sector, with an emphasis on on better connectivity and bandwidth. Thus, the quality of service has taken pole position. Hopefully, these reforms will push telecom services to another level, which will allow the best in the global industry to provide their services in India, which will prompt existing operators to invest more in innovation and to offer telecom services. best quality. Certainly, we envision a boom for the telecommunications sector this decade.

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