Cabinet clears waiver of bank guarantee on pre-2022 spectrum deals; Vodafone Idea to gain

Telecom

The Union Cabinet has approved the waiving of bank guarantee for telecom operators on spectrum purchased before 2022, sources said.

The move has come as a relief to Vodafone Idea, which owes the government over Rs 24,700 crore on bank guarantees (BG), sources said. Indian telecom operators, including Airtel and Vodafone Idea, collectively hold more than Rs 30,000 crore in BG obligations.

This decision follows the 2021 Cabinet reforms, which eliminated the requirement for bank guarantees on spectrum acquired in the future. By extending this relief to older spectrum holdings as well, the government aims to reduce financial stress in the telecom sector and strengthen its stability.

In August, the Cellular Operators Association of India (COAI) urged Telecom Secretary Neeraj Mittal to revoke BG requirements for pre-2022 spectrum purchases. The COAI said the move would enhance the operators' cash flow, enabling greater investment in network expansion. The industry body contended that the same logic should apply to existing spectrum holdings if future spectrum dues no longer required securitisation.

The 2021 telecom reforms had removed the BG requirement for spectrum acquired in auctions starting from 2022. However, operators were still obligated to provide BGs for deferred payments on spectrum bought before 2022. The original rule was meant to ensure that telcos fulfilled their annual payment obligations for spectrum.

Vodafone Idea has repeatedly highlighted its financial struggles, urging the government to lift the BG requirement to ease its spectrum payment burden. The company argued that such a waiver would enable banks to extend additional credit, offering much-needed financial relief.

The telecom company failed to pay its second BG of approximately Rs 350 crore, which was due on November 1, for the spectrum acquired in a 2012 auction. This incident follows the company missing a payment of over Rs 4,600 crore for a BG related to a 2016 spectrum auction in September.

Vodafone Idea has recently raised Rs 24,000 crore through equity and is now seeking to raise an additional Rs 25,000 crore in loans and another Rs 10,000 crore in bank guarantees or letters of credit. This funding is essential for continuing its capital expenditure plans to compete with Airtel and Jio.

Banks are cautious and are in a wait-and-watch mode due to Vodafone Idea's stressed financial condition. They are requesting more corporate guarantees before extending any credit.

The issue regarding the submission of BGs surfaced after the Department of Telecommunications (DoT) returned all BGs in late 2021 as no installment was due for 35 months. The telecom reforms introduced in September 2021 allowed telecom companies to access a four-year moratorium on spectrum fees and adjusted gross revenue (AGR) dues.