The Department of Telecom (DoT) has taken a favourable view on waiving bank guarantees telcos owed for buying spectrum up to 2022. The move is expected to largely benefit Vodafone Idea, which needs to secure bank guarantees worth Rs 27,000 crore in the coming months, people aware of the ongoing discussion told Moneycontrol on condition of anonymity.
“There is an alignment between the industry’s demand and the telecom department, except for a few issues that are expected to be ironed out soon, and the department is working on the same,” one of the sources told Moneycontrol.
A second source close to the development noted that there was room for relief, as the 2024 auction did not require bank guarantees after new rules were introduced in 2021 as part of a reforms package. The department has been actively engaging with telecom operators on the issue, they added.
In August, the Cellular Operators Association of India (COAI), a representative body for telecom operators, wrote to Telecom Secretary Neeraj Miital, advocating the removal of bank guarantee (BG) requirements for auctions conducted before 2022.
COAI argued that this change would improve the cash flow for telcos, allowing them to invest more in network expansion.
The telcos argued that since securitising future spectrum dues is no longer required, the same principle should apply to existing spectrum holdings. “The creditworthiness of telcos remains consistent, whether it is for past or future spectrum auction payments… continuing with this requirement unnecessarily blocks the working capital of the telcos, inhibiting investments in network rollout to deliver ubiquitous coverage and connectivity to Indian citizens,” the COAI letter stated.
The 2021 reforms, approved by the Cabinet, eliminated the BG requirement starting with the 2022 auctions. However, telcos are still required to provide BGs for deferred payments on spectrum acquired before 2022. The bank guarantee rule was originally put in place to ensure that telcos meet their annual payments for purchased spectrum.
Draft Cabinet Note
The DoT recently prepared a draft Cabinet note and shared it with the law and finance ministries, seeking their feedback. Approval of the bank guarantee waiver will require the Cabinet approval and an amendment to the Notice Inviting Applications (NIA), the legal document outlining the auction rules and procedures.
Initially, the DoT had rejected the telcos’ request for a waiver, as the NIA for each auction specified the BG requirement.
According to sources, the DoT’s draft Cabinet proposal outlines waiver terms for 2012, 2014, 2015, 2016, and 2021 spectrum auctions, contingent on the companies agreeing to certain conditions.
If approved by the Cabinet, Vodafone Idea, a heavily debt-laden telecom operator, will be the primary beneficiary. The telco is expected to arrange bank guarantees of Rs 24,700 crore over the next few months, as the moratorium for spectrum auction dues ends in October 2025. The moratorium mandates BG submissions 13 months before the next payment date.
Vodafone Idea was initially required to submit BGs in instalments for various auctions, starting with a Rs 4,300-crore guarantee for the 2016 auction, due on September 20 this year. The telco missed this deadline, prompting a notice from the DoT.
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