At a time when other telecom operators are struggling financially and have opted to take a moratorium in making regulatory payments, Reliance Jio Infocomm Ltd (RJIL) has paid ₹30,791 crore to the Department of Telecom (DoT) towards prepayment of the entire deferred liabilities pertaining to spectrum acquired via auctions in 2014, 2015 and 2016, and the spectrum acquired in 2021 through trading of right to use with Bharti Airtel. These liabilities were due in annual instalments from FY 2022-23 to 2034-2035 and carried interest rate between 9.30 per cent to 10 per cent with an average residual period of 7 plus years.
The company had acquired 585.3 MHz spectrum through these transactions. Jio estimates that the above prepayments will result in interest cost savings of around ₹1,200 crore annually, at the current interest rates.
RJIL had executed the first tranche of prepayment in October 2021 of Rs 10,700 crore for spectrum acquired in the auction in 2016. In September, the Union Cabinet-cleared package includes a four-year moratorium on spectrum and Average Gross Revenue (AGR) dues. The government will have an option to convert any amount pertaining to the deferred payment due into equity at the end of the moratorium/deferment period. Subsequent to DoT’s decision in December 2021 providing the telcos the flexibility to prepay their deferred spectrum liabilities on any date, RJIL has now prepaid the entire deferred liabilities.
In contrast, Vodafone Idea has not only opted to seek a four-year moratorium on all dues but has also offered 35 per cent stake to the Government against outstanding interest payments related to spectrum auction instalments and AGR dues. Even after offering equity , Vodafone Idea still owes over Rs 1 lakh crore to the Government including Rs 58,000 crore in AGR dues.
Bharti Airtel, which is better off that Vodafone Idea in terms of cash flows, has also opted for the four-year payments moratorium — on AGR and spectrum dues — being offered by the government as part of a relief package for the telecom sector. Airtel still has to pay Rs 25,000 crores in AGR dues in addition to rs 75,000 crore it has to pay for spectrum bought from 2012 onwards.
Jio on the other hand had only Rs 200 crore in AGR dues because it started operations only in 2016. Therefore it had to pay only for the spectrum it bought in various rounds of auctions. According to industry experts, Jio has two advantages by clearing its dues in one go. “First, the balance sheet will be cleaner with lower debt. This will enable the operator to raise additional funds for the upcoming 5G services, if required. Secondly, it saves on interest payments for deferred payments. The operator can reinvest the cash generated from operations back into the business instead of having to service regulatory debt,” said an industry analyst.
Operators will need at least Rs 50,000 crore each to purchase spectrum in the upcoming auctions and rolling out the necessary network to be able to offer 5G services to customers. With zero regulatory dues out of the way, Jio will be better placed to make fresh investments. Rival operators including Airtel and Vodafone Idea will not only have to make provisions for paying the dues at the end of the four year moratorium but also pay the interest for the period. “ Airtel and Vodafone Idea will have to use the moratorium period to improve their immediate cash flows but in the long term they will have to ramp up their revenues to a level that can generate enough cash to service the payouts at the end of the four years,” said another analyst.