In Short:
Vodafone Idea is discussing with the Department of Telecommunications (DoT) to remove bank guarantee requirements for spectrum acquired before 2022. The DoT has issued a notice for bank guarantees, which the company is contesting. Vodafone Idea needs to submit over Rs 24,700 crore in guarantees by 2025. If waived, this could also help competitors Reliance Jio and Bharti Airtel.
New Delhi: Vodafone Idea has confirmed that it is actively engaged in discussions with the Department of Telecommunications (DoT) regarding the potential removal of bank guarantee requirements linked to spectrum acquired prior to 2022.
This development comes in response to an earlier report by the Economic Times, indicating that the DoT issued a notice to Vodafone Idea demanding payment of bank guarantees (BGs) as stipulated by existing regulations, amidst ongoing discussions concerning a waiver.
The company stated in a filing to the BSE, “We would like to submit that the Company has made detailed representations to the DoT and continues to be engaged with DoT for removal of the bank guarantee requirements for spectrum acquired before 2022. This is also an industry ask.” Furthermore, Vodafone Idea indicated that it would comply with legal requirements for disclosures once a final decision is reached by the DoT.
Context of Discussions
Currently, the DoT is in talks with the Finance Ministry regarding the abrogation of bank guarantee obligations. Vodafone Idea is expected to submit these bank guarantees, as the moratorium on spectrum auction dues will conclude in September 2025, necessitating BGs to be provided at least one year in advance to secure the dues. The spectrum auction dues were set to be covered by tranches of bank guarantees starting September 20.
Financial Implications
Vodafone Idea faces a requirement to furnish bank guarantees totaling over ₹24,700 crore to the government in the forthcoming months. Previously, the company had reached out to the DoT to request a waiver for the submission of these guarantees. While recent regulations exempt firms from providing bank guarantees for airwaves acquired in auctions from 2022 onward, earlier stipulations mandated a BG equating to one annual installment.
Industry Impact
Should the DoT elect to waive the BG requirements for historical auction obligations, it would not only benefit Vodafone Idea but also Reliance Jio and Bharti Airtel to some extent. Current estimates suggest that Reliance Jio could face annual bank guarantee needs around ₹4,000 crore, while Airtel may require approximately ₹3,000 crore.
It is worth noting that both Airtel and Jio have been proactively clearing previous spectrum dues by opting for prepayments to mitigate interest costs. Recently, Airtel made a substantial prepayment of ₹8,465 crore to the DoT concerning the 2016 spectrum auction.
