The Department of Telecom (DoT) is reportedly considering towards waiving bank guarantees (BGs) for telecom operators concerning spectrum purchases made up to 2022. This decision could significantly aid Vodafone Idea, which needs to secure BGs amounting to Rs 27,000 crore in the coming months, Moneycontrol reported, citing people aware of the ongoing discussion.
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Ongoing Discussions
According to the report, discussions between the DoT and the telecom industry are ongoing, with a general alignment on issues, except for a few that are expected to be resolved soon. Notably, the 2021 reforms exempted the upcoming 2024 auction from requiring BGs, prompting the industry to seek similar relief for previous auctions.
“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 report added.
“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,” the report said, citing one of the sources as saying.
COAI Advocates for BG Waiver
In August, the Cellular Operators Association of India (COAI) urged the DoT to eliminate BG requirements for auctions prior to 2022, asserting that such a move would improve cash flow and enable increased investment in network infrastructure. They emphasised that the need for BGs is outdated since the rules have changed for future spectrum dues.
“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.
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Cabinet Approval Required
The DoT has reportedly drafted a Cabinet note proposing the waiver of BGs for spectrum auctions conducted in 2012, 2014, 2015, 2016, and 2021, contingent on telecom companies meeting specific conditions. However, final approval will require the Cabinet’s consent and amendments to the Notice Inviting Applications (NIA).
Potential Relief for Vodafone Idea
If approved by the Cabinet, Vodafone Idea, a heavily debt-laden telecom operator, will be the primary beneficiary. The operator is expected to arrange BGs of Rs 24,700 crore over the next few months, as the moratorium on its spectrum auction dues ends in October 2025. The company has already missed a key BG submission deadline for the 2016 auction, leading to a notice from the DoT.
