Government Reduces BGs, Allows 100% FDI Automatically, Telecom News, ET Telecom

New Delhi / Mumbai: The government has said that 100% of foreign direct investment (FDI) in telecommunications services and Tier 1 telecommunications infrastructure providers will come under the automatic approval path. The government has also reduced to 20% the bank guarantees (BG) that operators must provide to the Department of Telecommunications (DoT) during licensing agreements, relieving telecommunications operators like Vodafone Idea (Vi) and Bharti Airtel.

Allowing 100% FDI in the telecommunications sector and reducing BGs were part of the telecommunications reforms announced by the government on September 15.

“All telecommunications services, including Category I telecommunications infrastructure providers, ie. Basic, Cellular, United Access Services, Unified license (Access services),…. Such other services which may be authorized by the Department of Telecommunications (DoT) ”, are qualified for 100% FDI under the automatic channel, press note 4 issued by indicated the direction of industrial policy and promotion (DPIIT). Previously, up to 49% of FDI in telecommunications was subject to the automatic channel and any investment beyond that had to first be authorized by the government.

The DoT also informed about changes in the BGs. “The license holder must submit a financial bank guarantee valid for one year with any bank or public financial institution, duly authorized to issue such a bank guarantee … Initially, the financial bank guarantee will be in the amount of Rs50 / 25 / 5 crore (for category ABC service areas, respectively), which must be submitted before signing the license agreement, ”said the DoT.“ Thereafter, the amount of FBG will be equivalent to 20% of the estimated amount payable (a license fee for two quarters and other dues, not otherwise discussed and any additional amount deemed appropriate by the licensor, “says the notice.

“The performance bank guarantee … of this license agreement must be submitted separately for each department and service area for the amount … the deal may be valid for one year with any planned public bank or financial institution.” . “, specifies the clause modified by the telecoms department.

The DoT set Airtel’s OTSC dues at Rs 8,414 crore. Bharti Airtel recorded a charge of Rs 1,807.5 crore towards OTSC in 2019-2020, the balance of Rs 6,606.5 crore as a contingent liability.

In case of financial BG, the license holder must submit separately for each service and service area the amount, subject to a maximum of Rs 8.8 crore. Rs 44 crore. BGs had long been a contentious issue between telecom operators and the government and even banks were getting nervous about renewing them given the poor financial situation of telecom operators like Vi.

With these changes, the government hopes to attract investment in the sector by facilitating the inflow of capital. It remains to be seen, however, whether besieged telecom operator Vi will be able to raise funds, as its attempts have so far failed.

However, the note added that all foreign investments in telecommunications services will be subject to the provisions of paragraph 3.1.1 of the FDI policy. This provision requires that any foreign direct investment entering India from a country with which it shares its land border must first be approved by the government.

Likewise, in the case of BGs, the government has stated that the rationalization of BGs would not be applicable in the event that BGs are the subject of litigation, or for licensees who are the subject of litigation proceedings. insolvency or having been submitted in connection with previous spectrum auctions.

The government had announced a series of reforms in the telecommunications sector. Deferral of Adjusted Gross Revenue (AGR) and spectrum payments due to the government for four years with the option of the government to convert the main component to government equity, and telecommunications operators having the option to convert the component to ‘equity interest being one of the most important reforms announced. The abolition of spectrum usage charges (SUC) from future spectrum auctions, allowing 100% FDI in telecommunications services, a drastic reduction in BGs and also allowing telecommunications companies to cede unused spectrum to the government were other important reforms announced.

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