Indian government dials M for moratorium – Airtel, Vodafone Idea get a four-year relief on AGR dues

• The telecom relief package gives Airtel and Vodafone Idea a time-freeze of four years from making payments towards their respective adjusted gross revenue (AGR) dues.
• While Vodafone Idea is running on fumes, with a cash balance of just ₹920 crore, the relief measures boost Airtel’s liquidity position, allowing it to invest aggressively in the upcoming 5G spectrum auctions.
• Check out the complete details of the telecom relief package and AGR moratorium.

The much-awaited telecom relief package has been announced by the Indian government on Wednesday, giving a fresh lease of life to the struggling Vodafone Idea.

The telecom relief package gives Airtel and Vodafone Idea a time-freeze of four years from making payments towards their respective adjusted gross revenue (AGR) dues.

Airtel will benefit from the four-year moratorium on AGR dues, freeing up its cash reserves to invest in the upcoming 5G spectrum auctions.

In anticipation of the relief package, both Airtel and Vodafone Idea’s shares have registered a rally in September. While Vodafone Idea’s shares have surged by over 44% in the first half of the month, Airtel has seen its stock go up by nearly 10%.

“AGR has been a highly contentious and litigious issue for several years. It has been decided to rationalise the definition of AGR,” announced Telecom Minister Ashwini Vaishnaw.

The minister, however, did not reveal whether the government will pick up a stake in Vodafone Idea by converting a part of AGR dues into equity.

Here’s what the telecom relief package consists of

Making the announcement, Vaishnaw revealed that the non-telecom revenue will be excluded from the definition of AGR. This should benefit government undertakings like Indian Railways, Gas Authority of India, Power Grid Corporation, among others, who are captive users of spectrum.

The headline announcement, though, is the four-year moratorium on AGR and spectrum dues. The companies who avail of this facility will have to pay interest on the amount and period of moratorium, since the government would have to protect its revenue. Both banks and telcos will benefit from de-stressed balance sheets thanks to this relief measure.

Apart from this, the government has announced that instead of compounding interest on spectrum dues on a monthly basis, it will now do so on an annual basis. This should drastically reduce the impact of compounding and offer major relief to telecom players who have to pay AGR and spectrum dues.

Here are a few other highlights from the government's announcement:

• The minister also announced that the penalty on late payment of dues has been completely removed.
• Telecom operators will also now be able to share spectrum freely, without having to pay any charges whatsoever to the government.
• 100% foreign direct investment via the automatic route is now allowed, increasing from 49% previously.
• In addition to this, the government has now allowed complete digitisation of know your customer (KYC) norms while buying a new connection or switching from postpaid to prepaid and vice-versa.
• Telecom operators will also no longer require licences for procuring telecom equipment, henceforth.

What is AGR?

In 1999, the government and telecom operators shifted to a revenue-sharing fee model that requires them to share a part of their adjusted gross revenue (AGR) with the government as annual licence fee and spectrum usage charges.

AGR is defined in the license agreements entered between the Department of Telecommunications (DoT) and the telecom operators.

Here’s how much Vodafone Idea and Airtel owe the government in the form of AGR dues:

Company	Total AGR demand (in crore)	AGR dues paid (in crore)	Balance AGR dues (in crore)
Vodafone Idea	₹58,254	₹7,854	₹50,339
Airtel	₹43,980	₹18,004	₹25,976

Source: AGR dues case in the Supreme Court

Vodafone Idea also pays approximately ₹5,000 crore per year towards licence fee and spectrum usage charges. Additionally, according to a report by The Economic Times, the telco will have to pay ₹14,000 crore annually towards spectrum payments, taking its annual liability to ₹19,000 crore.

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