Dues via equity, defining non-telecom revenues: Guidelines likely in 2 weeks

According to analyst estimates, the government could theoretically end up with a major chunk of share in a company like Vodafone Idea should it choose to avail the moratorium and is unable to repay its dues in the four-year period.

The Department of Telecommunications (DoT) is expected to come out with guidelines over the next 2 weeks for payment of statutory dues by telecom companies using equity, for which the department is expected to have discussions with the Finance Ministry soon, government officials said. On Wednesday, the Union Cabinet approved a series of measures for the telecom sector, including an option for companies to pay their statutory dues such as licence fee, spectrum usage charge and the interest and penalties accrued on those with equity of their firms. This will be applicable after the four-year moratorium period given by the government to repay their dues concludes.

This was one of the measures unveiled on Wednesday where the industry is awaiting for the fine-print. These guidelines will include the modalities and finer details of how the government plans to convert the due amount of operators, arising due to the four-year moratorium, to equity. “The DoT will issue guidelines. In any case, these measures are applicable from October 1. Even if guidelines come later, it will not matter, since the applicability will be from October 1,” an official said.

According to analyst estimates, the government could theoretically end up with a major chunk of share in a company like Vodafone Idea should it choose to avail the moratorium and is unable to repay its dues in the four-year period.

“While four-year moratorium would ease immediate cash flow constraints for Vodafone Idea (VIL), it will need to also raise around $1bn over next 6-9 months … Further, if VIL were to opt to convert Rs 67,000 crore of interest accrued during the moratorium period, it would entail a dilution of approximately 70 per cent for existing VIL shareholders with government owning around 70 per cent of VIL (on proforma basis assuming conversion at current market price of Rs 9 per share),” Credit Suisse noted in a research report.

The DoT is also learnt to be working on tweaking the definition of non-telecom revenue for its exclusion from adjusted gross revenue (AGR). “Non-telecom revenue is defined in TRAI recommendations of January 2015. That will be our reference point. We will add more details later if required. But it will all be as simple as possible, so that there is no litigation in future,” a top DoT official told The Indian Express. According to the official, this would primarily pertain to aspects such as interest earned by companies on their telecom revenues. The inclusion of non-telecom revenue for the purpose of calculating AGR was a main point of contention between the industry and the government for the last 20 years and the Supreme Court last year ruled in favour of the Centre. The AGR is used to calculate levies such as spectrum usage charge (SUC) and licence fee, which are paid annually by telecom operators to the government. The Centre has announced it will exclude non-telecom revenue from AGR but it is still working on the exact modalities of the new definition.

The third major aspect of Wednesday’s announcements that has been flagged by companies is the removal of SUC for spectrum auctioned hereon. Currently, SUC is calculated on the basis of a weighted average method. Ahead of every spectrum auction that has happened, the government has notified a rate of SUC applicable on airwaves picked by companies during that auction. The quantum of the spectrum won by a company decides the weight of the SUC rate from that year. It is then calculated as the sum of products of the spectrum holding and their respective SUC rates divided by the total spectrum held by each company. Theoretically, with future auctioned spectrum having 0 per cent rate of SUC, the overall rate for each company should come down, resulting in benefit accretion for mobile companies.

However, a senior telecom industry executive explained that for this measure to be effective, companies will have to purchase higher quantum of spectrum in the upcoming auctions. “Currently, operators are charged SUC at a rate between 3-5 per cent. It is between 4-5 per cent for Airtel in most circles, 3-4 per cent Jio and just above 5 per cent in most circles for Vi. For their SUC rates to come down, they will need to purchase a lot of spectrum,” the executive said. Further, as per existing policy on SUC rate calculation, there is a floor price of 3 per cent because of which benefits on reduced SUC for telecom firms will not go below 3 per cent.

“If the government decides to keep the 3 per cent floor, then the impact will be marginal. If it does away with the floor, then SUC for companies like Airtel and Jio will fall to 2-2.5 per cent and this could result in significant revenue loss for the government,” they added.

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