Cabinet approves 100% FDI in Telecom Sector under automatic route: Present health of sector ignored?

We are running the risk of turning the telecom sector from an oligopoly to a duopoly.
Telecom Sector
Telecom Sector

The Union Cabinet today approved 100% Foreign Direct Investment (FDI) in the telecom sector through the automatic route. The government also announced a host of reliefs for the telecom sector.

Given that all these announcements and changes apply prospectively and not retrospectively, does it in any manner help in reviving the present health of the telecom sector?

In my view, in the process of securing the future of the sector, the government appears to have failed to consider its present state. If some of the key telecom players don’t survive today, what’s the point in making the sector lucrative for foreign players/global investors in the future? We are running the risk of turning the sector from an oligopoly to a duopoly.

The following were the highlights of today's announcement:

  • A four-year moratorium on payment of statutory dues by telecom companies;

  • Allowing 100 per cent foreign investment through the automatic route. However, certain safeguards, including Press Note 3 of 2020, will be applicable. Until now, only 49% FDI was allowed through the automatic route. Anything beyond 49% was allowed through the government route, under which the foreign investors have to obtain prior approval of the government;

  • Freedom to share spectrum;

  • Clarity and rationalisation on the definition of adjusted gross revenue (AGR). This will reduce a lot of stress on players as it now excludes non-telecom revenue of telecom companies; and

  • Digitisation of Know Your Customer (KYC) forms, scrapping of penalty on payment of licence fees, spectrum user charges and all kinds of charges.

However, the big question is whether these measures will resolve the present cash flow issues being faced by some players in the industry, like Vodafone-Idea?

The exposure of Vodafone will still continue as its cash-flow issue will still remain, even after these reforms. For example, the burden of interest payment on moratorium will continue; there is no extension of Vodafone's existing AGR and spectrum payments to the government; no relief has been granted on their bank guarantee. These were some low-hanging fruits that the government could have plucked to revive the true oligopoly in the telecom sector. For Vodafone-Idea to survive, huge promoter funding is the need of the hour.

Today’s transformational reforms in the telecom sector were announced almost after a year of Press Note 3, which introduced prior approval for FDI from countries that share a land border with India, like China. Also, these reforms were announced with a view to change the framework of the entire sector and to broaden the industry. Only time will tell the effectiveness of these reforms to deal with the present issues being faced by some of the telecom players, specially Vodafone-Idea. To bear and enjoy the fruits of tomorrow, the telecom players must survive today and also exist tomorrow.

Abhishek Sinha is an Assistant Professor at School of Law, UPES and Founder of NotJustLex Education LLP.

Disclaimer: The views and opinions expressed in this article are those of the author's and do not necessarily reflect the views of the organisations he is associated with or of Bar & Bench.

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