First and foremost, this is an excellent package that the government has come out with. All the measures indicated in the structural reforms are very sensible and rational, and were probably something that ought to have been done quite some time ago.
Similarly, the procedural reforms were crying out for adoption since a long while. These are addressing really important pain areas – uncertainty regarding when the auction would be done; the import of wireless equipment; very cumbersome manual KYC requirements which are anachronistic to a digital sector. The SACFA clearance for telecom towers also is a very important procedural reform.
All of the structural reforms—removing, for example, the non-telecom revenue [from AGR calculation] is a very obvious measure that was required for quite some time now. The earlier situation, where telecom companies typically had only-telecom revenues and non-telecom revenues were an insignificant portion no longer holds good. It has not been the case for a decade or more now. It made no sense to continue with that definition, as similarly with all the bank guarantees requirements.
The spectrum tenure being increased with an option to exit after 10 years gives both certainty as well as an escape route. The abolition of spectrum usage charge for future auctions and making it easy to share spectrum are all absolutely welcome and very rational set of steps.
The other category of reforms announced, for the purpose of removing some of the liquidity problems that players in the sector have been facing – in particular Vodafone Idea but to a lesser extent Bharti Airtel and to a very minor extent Reliance Jio – that has been sought to be addressed by the deferment of up to four years but protecting the NPV at the current value.
Giving the option to pay it as equity provides an escape route for a company from a cash outgo. That is in two parts, the details will have to be figured out. One is that the option for the telecom service provider to pay the interest arising by way of equity. The second is the government having the option to convert the due amount of the deferred payment by way of equity at the end of the moratorium period. The [equity conversion of] interest appears to be at the option of the TSP, while that of the due amount at the option of the government. We will have to wait for the fine print on this to see what kind of equity—is it preference equity or at pari passu (equal footing) with the original promoters, etc… all those questions will come up later. In a sense, this offers a mechanism to not force the extraction of liquidity from a company. Of course, it does mean to some extent diluting the ownership based on whatever is the fine print of the provision for conversion of dues or interest into equity.
Net net, for the sector, this package is a very good thing, there is no question about that, well thought-out and well-reasoned, rational and offers the kind of oxygen that the sector was very badly in need of.