Bharti Airtel also signs for 4-year moratorium

Almost a week after Vodafone Idea signed up for the 4 year moratorium, Bharti Airtel has also signed up for the moratorium. While Vodafone Idea had only signed up for moratorium on the spectrum dues, Bharti Airtel has signed up with DOT for moratorium on AGR charges and Spectrum Usage Charges (SUC). The last date for signing up was 29-October.

Check - Vodafone opts for 4 Year Moratorium on AGR Charges

In addition, the government has also given the telecom companies an offer by which they would be able to convert the interest portion of the moratorium period into an equity stake and offer it to the government. However, since the telecom companies have 90 days to take a final call on this issue, Bharti Airtel has not committed on this front.

Telecom companies opting for the moratorium on the AGR charges and the spectrum usage charges (SUC) would have to pay interest to the government at the rate of 2% above the incremental prime lending rate. This amount would be payable for the full 4 year period. However, telecom companies have the option to convert this portion into equity stake.

This was part of the relief package announced by the government last month for the telecom companies to relieve them from cash flow stress. While Bharti is not in such a serious financial crunch as Vodafone Idea, they did see merit in conserving cash flows for the time being so as to have a bigger war chest to take on competition from Jio.

Sunil Mittal of Bharti Airtel has already stated that their company would use the cash flows saved during the moratorium to aggressively build the network. In the case of Bharti, the interest component over 4 years alone would work out to Rs.10,000 crore so if they swap it with their equity stake, it would entail handing over 2-3% stake in Bharti Airtel to the government of India.

The more important consideration for Bharti Airtel is that this moratorium will free up cash flows to the tune of Rs.40,000 crore which will give them enough ammunition to ramp up networks and drive profitability in the interim. Telecom companies need to invest heavily in upgrading networks and in spectrum to become 5G ready.

Among other things, the Telecom Relief Package also allowed sharing of airwaves, 100% FDI and change in the definition of revenues on which AGR is payable.