Sector will Wait Longer as Cabinet Postpones Decision on Telecom Relief Package

An official source have said that the cabinet did not discuss the much-awaited telecom relief package to provide relief to India's debt-ridden telecom sector. Shares of Vodafone Idea and Bharti Airtel rallied up on Tuesday in anticipation of a decision on the relief package. However, the cabinet has chosen not to discuss it today.

Cabinet Makes Sector Wait Longer for Telecom Relief Package

The telecom relief package is being widely regarded as being the most important for Vodafone Idea, as the struggling telco seeks financial respite.

The package will give some much-needed breathing space to the telecom industry. Telecom remains one of the trickiest industries in the country, and currently, the sector has a cumulative debt upwards of 8 trillion rupees. However, much of the focus was on Vodafone Idea, as the cash-strapped telco struggles to stay afloat.

Vodafone Idea reported a cash reserves of Rs. 920 crore, and a debt of over Rs. 1.9 trillion. What's more, much of this debt consists of payments to the government; the telco has to pay over Rs. 62,000 crore in AGR dues, and over Rs. 1 trillion in deferred spectrum payments. These spectrum payments - starting in April 2022 - will go on for 10 years, with an instalment of around Rs. 14,000 crore.

The telco has to pay the first instalment of the said AGR dues in March 2022. However, analysts believe that if the telco gets a deferral option of four years, it could push its AGR payout of almost Rs. 36,000 crore by that duration; this will ease its immediate cash flow problems. Along with this, the telco pays about Rs. 5,000 crore annually in SUC and licensing fees.

In all, come March 2022, Vodafone Idea will have to pay about Rs. 28,000 crore per year in various levies and charges.

However, according to a report published by BNP Paribas, "if the government lets VIL surrender under-utilized spectrum, the company can review its spectrum needs and decide to vacate certain markets, which can reduce its debt burden as well as losses".

It looks likely that Airtel will not go for the said AGR deferral option; there remains an interest attached to the deferral, and the telco might not be too keen on that.

The telecom sector has seen an overall reduction in ARPU ever since Mukesh Ambani's Jio hit the market in 2016. The new telco on the block offered free voice and cut-price data plans. Therefore, other telcos had to follow suit to stay in the game, which has led to compounding problems and shrinking headroom.

However, Vodafone Idea's survival remains crucial to the telecom sector; in an event of it going down, the sector will become a two-horse race, without any checks and balances.