Contributions Via Equity, Defining Non-Telecom Income: Likely Guidelines in 2 Weeks

The Department of Telecommunications (DoT) is expected to issue guidelines over the next two weeks for the payment of legal dues by telecommunications companies using equity capital, which the department is expected to discuss with the finance ministry soon, officials said. government. The Union Cabinet on Wednesday approved a series of measures for the telecommunications sector, including an option for companies to pay their statutory contributions such as license fees, spectrum usage fees and interest and penalties accrued on the shareholders of their companies. This will apply after the end of the four-year moratorium period granted by the government to reimburse their contributions.

It was one of the measures unveiled Wednesday where the industry awaits the fine print. These guidelines will include the modalities and finer details of how the government plans to convert the amount owed from operators, resulting from the four-year moratorium, into equity. “The DoT will issue guidelines. In all cases, these measures are applicable from October 1. Even if the guidelines arrive later, it won’t matter, since the applicability will be from October 1, ”an official said.

According to analysts’ estimates, the government could theoretically end up with a significant stake in a company like Vodafone Idea if it chooses to take advantage of the moratorium and is unable to repay its contributions within the four-year period. .

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

The DoT also learned how to work on fine-tuning the definition of non-telecom income for its exclusion of adjusted gross income (AGR). “The non-telecom turnover is defined in the TRAI recommendations of January 2015. This will be our point of reference. We will add more details later if needed. But everything will be as simple as possible, so that there is no more litigation in the future, ”a senior DoT official told The Indian Express. According to the official, this would mainly concern aspects such as the interest received by companies on their telecommunications revenues. The inclusion of non-telecommunications revenues for the purposes of calculating AGR has been a point of contention between industry and government for the past 20 years and the Supreme Court ruled last year in favor of the Center. . The AGR is used to calculate levies such as spectrum usage fees (SUC) and license fees, which are paid annually by telecommunications operators to the government. The Center has announced that it will exclude non-telecom revenues from AGR, but it is still working on the exact terms of the new definition.

The third major aspect of Wednesday’s announcements that has been reported by the companies is the removal of SUC for the spectrum auctioned here. Currently, the SUC is calculated on the basis of a weighted average method. Before each spectrum auction that has taken place, the government notified an applicable SUC rate on the airwaves chosen by the companies during that auction. The quantum of spectrum gained by a company decides the weight of the SUC rate for that year. It is then calculated as the sum of the products of the spectrum owned and their respective SUC rates divided by the total spectrum owned by each company. Theoretically, with future spectrum auctioned having a 0 percent SUC rate, the overall rate for each company is expected to drop, resulting in an accumulation of benefits for the mobile phone companies.

However, a senior executive in the telecommunications industry explained that for this measure to be effective, companies will need to purchase more spectrum in future auctions. “Currently, SUC operators are billed at a rate between 3 and 5 percent. It is between 4 and 5% for Airtel in most circles, 3 to 4% for Jio and just over 5% in most circles for Vi. In order for their SUC rates to go down, they will have to buy a lot of spectrum, ”the executive said. In addition, in accordance with the existing policy on calculating the SUC rate, there is a 3 percent price floor whereby the SUC reduction benefits for carriers will not drop below 3 percent.

“If the government decides to maintain the 3% floor, then the impact will be marginal. If he removes the floor, the SUC for companies like Airtel and Jio will drop to 2-2.5%, which could result in a significant loss of revenue for the government, ”they added.

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