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Govt relief package for telecom sector

GS Paper 2

Topics Covered: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

 

telecom sector

Context:

The Union Cabinet, last week, approved a crucial relief package for the cash-strapped telecom firms.

 

What is the relief package?

  • Package includes a four-year moratorium on payment of statutory dues by telecom companies as well as allowing 100% FDI through the automatic route.
  • The wide set of measures proposed entail reforms for the ailing sector by way of granting moratorium on unpaid dues, redefining Adjusted Gross Revenue (AGR) prospectively and cutting in Spectrum Usage Charges.

 

How does the package help?

  • It provided much needed relaxation to telecom companies Vodafone Idea, Reliance Jio and Bharti Airtel.
  • These are expected to protect and generate employment opportunities, promote healthy competition, protect interests of consumers, infuse liquidity, encourage investment and reduce regulatory burden on Telecom Service Providers (TSPs).
  • A moratorium on AGR-related dues will offer space to the cash-strapped firm to improve its business and clear dues over a longer period.
  • The definition of AGR has been changed to exclude non-telecom revenue. All non-telecom revenue will be removed from AGR.

current affairs

 

But how did the financial condition of the telcos deteriorate?

Let’s understand this in three simple steps:

  1. It started by and large with the differing legal interpretation of AGR. To understand this, one must go back to 1999, when the government decided to shift from a fixed to a revenue-sharing model for the telecom sector. Telecom players would pay a certain percentage of their AGR, earned from telecom and non-telecom revenues, as licence and spectrum fee.
  2. In 2003, the Department of Telecom (DoT) raised the demand for AGR payments. It said all revenue earned by telcos as dividend from subsidiaries, interest on short-term investments, money deducted as trader discounts, discount for calls and others, which was over and above the revenue from telecom services, would be included for calculation of AGR.
  3. The telcos approached the Telecom Disputes Settlement Appellate Tribunal (TDSAT), which in July 2006 ruled the matter must be sent back to the regulator TRAI for fresh consultation. TDSAT rejected the government’s contention, and the Centre moved the Supreme Court. While the case was still ongoing, in 2012, the Supreme Court cancelled 122 telecom licences in the 2G scam case. This prompted a revamp, with spectrum now allocated through auctions.

 

What was the Supreme Court verdict?

In 2019, the Supreme Court gave the first verdict in the case, holding that DoT’s definition of AGR was the correct one, and that the telcos must pay the AGR, interest and penalty on non-payment.

 

Insta Curious:

Do you know how spectrum auctions are held in India? Reference: read this.

 

InstaLinks:

Prelims Link:

  1. What is AGR? How is it calculated?
  2. What was SC’s verdict on this?
  3. Composition of TRAI?
  4. How spectrum allocation is done in India?

Mains Link:

Discuss the challenges facing the Indian telecom sector today. What should the Government of India do to save the telecom sector?

Sources: Indian Express.