The draft Indian Telecommunications Bill, 2022, which was unveiled by the government late on Wednesday, simplifies the rules for mergers and acquisitions and allows for the relief, write-off, or postponement of Debt in situations of payment default under exceptional circumstances.

Given the No. 3 telco’s precarious financial state and inability to acquire external equity capital of ₹20,000 crore, the suggested measures are intended to help businesses, customers, and maintain appropriate competition. This is important since the No. 3 telco is having trouble paying vendors.

When one considers the predicament Vodafone Idea is in, it’s a move in the right way for the industry, according to Rohan Dhamija, managing partner for Analysys Mason’s India and Middle East region.

The suggested changes, according to a business leader who wished to remain unnamed, are unmistakably intended to assist Vodafone Idea.

Since some of their payments are due in FY23 and the national debt is already quite high, it should undoubtedly benefit them. It would be a wise step if some of the fees or levies were waived, he added.

A top executive pointed out that although the rules would seem to benefit only one telecom company, they actually apply to the whole industry and to businesses that will provide telecom services if the bill is passed.

We should not focus on the immediate future, he said, but rather on the next four to five years, when it is unknown how much debt the telcos will have or whether other licence holders would have financial difficulty.

According to the proposed regulations, if a telecom licensee, registered entity, or assignee defaults on payments, the government may postpone the payment, convert it into shares, write it off, or provide relief of all or a portion of the amount, provided it can identify an exceptional circumstance of financial stress, consumer interest, maintaining competition in the sector, or reliability and continued supply of services.

The measure also suggests that after it becomes law, the government will have the authority to waive fees, interest, extra fees, fines, or provide exceptions from the bill’s terms.

According to brokerage CLSA, a $5–6 billion AGR relief was essential for Vodafone Idea. The continuing lawsuit involving the rectification of computational flaws in AGR has not yet been heard by the Supreme Court.

The government is responsible for the majority of the Aditya Birla Group-backed telco’s gross debt of ₹1.99 trillion, which is made up of ₹1.16 trillion, or roughly 60% of deferred spectrum dues, ₹67,300 crore in AGR debt, and ₹15,200 crore in bank debt, of which ₹5,000 crore must be repaid by the end of FY23.

Reliance Jio and Bharti Airtel, rivals who have also taken on debt, are profitable and have strong cash flows, in contrast to the No. 3 carrier, which had losses of ₹7,296 billion on sales of ₹10,410 billion for the quarter ending in June 2022.

Vodafone Idea’s auditors have emphasised the necessity of raising money swiftly and effectively negotiating with lenders for sustained assistance, without which its position as a going concern may be in question. This is because Vodafone Idea has debt payments due within the next 12 months. The issue was brought up in the carrier’s FY22 annual report. The telecom had said that it planned to attract outside capital totaling ₹20,000 crore through debt and equity avenues, but the raise has not yet been completed.

As the telco has not yet secured new bank loans and finalised equipment procurement contracts with suppliers, industry observers claim that the financial constraints will also affect Vodafone Idea’s ability to roll out the 5G network, which has lagged behind rivals Bharti Airtel and Reliance Jio, who plan to launch services as early as this month.

In September of last year, Vodafone Idea decided to put a four-year moratorium on paying its spectrum debts. Earlier this year, it decided to convert the interest on the moratorium—a sum totaling ₹16,000 crore—into equity that would be held by the government to the tune of around 33%. Even though the finance ministry approved the conversion two months ago, the administration has yet to finish it.