Bharti Airtel and Reliance Jio Set to Benefit From Removal of Spectrum Usage Charges

In a move poised to provide significant financial relief to India’s telecom industry, the government has decided to waive Spectrum Usage Charges (SUC) for airwaves acquired through auctions before September 2021 as mentioned in various news reports. This decision is expected to be a game-changer for telecom operators, helping companies like Vodafone Idea, Airtel, and Reliance Jio conserve substantial amounts of cash as they gear up for 5G expansion and the further strengthening of their networks.

The Background

The government had previously removed the SUC for spectrum acquired through auctions held after September 15, 2021. However, the status of airwaves purchased before that date had remained unresolved, leaving telecom operators burdened with additional costs. Now, the waiver is expected to apply retroactively to the spectrum acquired in earlier auctions, providing much-needed financial relief to the sector.

As per reports, the decision to waive SUC for the pre-2021 spectrum is expected to be formally approved soon. This move is seen as a crucial step in ensuring that telecom companies continue with their network expansion efforts without unnecessary financial hindrances.

Financial Relief for Telecom Companies

One of the most significant beneficiaries of this waiver is likely to be Vodafone Idea, which has been struggling with a massive debt load exceeding ₹2 lakh crore. It’s anticipated that the company is set to gain ~₹8,000 crore from this waiver, offering it a critical lifeline in its efforts to recover and stabilize.

Currently, telecom operators pay SUC at a rate of 3-4% of their adjusted gross revenue (AGR), along with an 8% license fee that includes a 5% contribution to the Universal Service Obligation Fund (USOF). By waiving the SUC for the pre-2021 spectrum, the government aims to reduce the financial strain on telecom operators, giving them more flexibility to focus on network enhancement and service expansion.

The Wider Industry Impact

While Indian telecom operators stand to benefit significantly, the waiver will not extend to new entrants like Starlink, the satellite internet venture by Elon Musk. Starlink and other satellite operators will still be required to pay SUC on their spectrum, as they acquire it through an administrative process rather than through competitive auctions. This distinction ensures that companies obtaining spectrum through government allocation at a fixed price are subject to SUC.

Despite this significant relief, there are still considerable financial challenges ahead for Vodafone Idea, especially with the looming end of the moratorium on AGR payments. As of the end of December, Vodafone Idea’s AGR dues stood at ₹70,000 crore, while the company’s cash reserves were relatively low at ₹12,090 crore. This underscores the importance of financial measures like the SUC waiver, which could provide a temporary cushion for the company while it navigates these challenges.

Conclusion

The waiver of Spectrum Usage Charges for airwaves acquired before September 2021 is a significant and positive step for the Indian telecom industry. It offers crucial financial relief to major operators, helping them focus on expanding their networks and rolling out 5G services.

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