Telecom relief package: Will it help Vodafone Idea cut debt? here's what experts say

The Union Cabinet has unveiled a relief package for the telecom sector, which includes a slew of measures comprising nine structural reforms and five process reforms.

The government has decided to rationalise the definition of adjusted gross revenue (AGR), keeping non-telecom revenue out of its ambit.

The Cabinet has also approved four years' moratorium on telecom dues -- these decisions will be applied prospectively.

The government has also decided to increase the FDI cap through the automatic route for the telecom sector from 49 percent to 100 percent.

On Vodafone Idea, Nitin Soni of Fitch Ratings, said, “We believe that it is a minor relief, it is not a waiver. It is only a deferment of spectrum liabilities in AGR dues for four with additional interest. The situation Vodafone Idea is right now that the cash generation is insufficient to pay even the interest costs, so this will increase the interest burden."

"They don't have enough cash to put money into capex. So what I believe is that they will continue to lose subscriber base and their market position will continue to weaken because they don't have sufficient money to invest and remain competitive in the market. So, overall minor relief, but it will only defer their payments, but it is not really a lifesaver.”

Naveen Kulkarni, CIO at Axis Securites, said, “So one way to look at it is that there is a timeframe as close to four years for the industry as such to get the overall structure in terms of tariffs, in terms of overall cash flows up from where they are currently, right."

"So if that can be improved upon then there is there is a business case for Vodafone idea."

Kulkarni said right now what the government has done is, it has provided relief on cash flows, "I think which to some extent, I would say is significant, and the period is four years, which is significant."

The important factor here is that if Vodafone idea is able to put its act together, raise some funding, improve its network quality and manages to hold on to its subscribers and its market share and also subsequently the industry is able to take the tariffs up then there is a business case for the company, Kulkarni added.

"So I would say that it is not completely ruled out. But still, it is going to be an uphill task from here."

SP Kochhar of COAI said, “Well, on the face of it, it is a good step that the government has taken. It is an indicator of the thinking in the government circles. If you notice, the first reading shows that all the steps that have been announced are prospective in nature, and will not give too much of immediate relief. But it also indicates that maybe for the 5G government is aware, and at this point of time, they will announce Greenfield steps, which will help us roll out 5G in a much more cost-effective manner with better procedures with better costs.”

Peeyush Vaish of Deloitte India said the government has taken quite a few bold initiatives today. Absolutely hands down to the government for taking a lot of initiatives today, Vaish added.

"I think four years is fairly a long period for the moratorium and I think this clearly paves the wave for good auction happening for 5G. I think the government was very clear in mentioning that we can expect auctions happening in the last quarter because he talked about the time-table so that also gives a message that we are clearly on the way to bring in 5G into India. So that is another piece.”

“Also a lot of simplification is being carried out whether it was at the consumer side from a KYC perspective, whether it was the tower etc. I think it looks like the government is really committed to make sure that we have a far smoother process. Obviously, there is nothing that can be to be done for the retrospective thing. But clearly prospective I think the government is absolutely committed to really get this industry really moving at a much faster and smoother pace.”

Ankit Jain of ICRA said, “We didn't have any rating on Vodafone idea, but this is definitely a welcome move. Big relief for the sector as a whole. So we expect that moratorium on AGR dues will give a breather of around Rs 14,000 crore for the industry and on the spectrum news, it will be somewhere around Rs 32,000 crore of cash flow relief."

Jain added, “The other measures are also welcoming I mean, especially the rationalisation of the definition of AGR, production in SUC dues on the spectrum sharing, a calendar on spectrum auctions I thought is a very good move it gives way for the telecom operators to plan for the purchases and also the elongation of spectrum auctions location for a period of 30 years. So all in one very good package at a very good point in time.