4 Year Moratorium on AGR Rules Provides Big relief to telecom By Axis Securities
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4 Year Moratorium on AGR Rules Provides Big relief to telecom
The Union Cabinet approved a 4-year moratorium period on dues and rationalized the definition of adjusted gross revenue (AGR). This reform will change the framework of the entire telecom industry while broadening it. LF and SUC, prospectively, delay in payment will attract interest at MCLR+2%, and would not attract any penalty. Spectrum useful life in the upcoming auction is extended to 30 years from the current 20 years. This will have 10 years lock-in with a provision to surrender after 10 years with surrender charges. Spectrum auction calendar is to be created to ensure availability of the spectrum. Furthermore, 100% FDI is allowed through an automatic route. Applications are encouraged to be digitized. India technology will be encouraged for 4G & 5G RAN/Core.
We believe that Telecom minister Mr. Vaishnav is keen on providing growth impetus to the industry by augmenting technologies. He commented 4G and 5G core/RAN technologies to be indigenously manufactured in India to boost the Make in India initiative and further noted that locally designed and manufactured equipment and technology will be deployed in BSNL’s network in the coming months. This is also be exported to foreign markets.
Enabling telecom companies to save higher cash flows
The relief package applies to the entire industry through telecom companies already undergoing the insolvency process will have to get clarity from NCLT courts. The relife will help telecom companies to save cash flows while supporting their operations.
Impact on Indian Telecom Services companies
We believe the relief package is a welcome step towards strengthening the industry and ensuring the survival of Telecom operators as well as maintaining healthy competition for the benefit of the customers. The removal of non-telecom revenues from the definition of AGR and the removal of penalty has been a much-needed change. This extra burden has hurt the telecom industry in the past but the new reform will now pave the way for telecom players to make higher capital investments.
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