India’s telecom industry, with an overall debt of over Rs 4 lakh crore, faces an uncertain future as it is may find it difficult to pay the dues to the Centre, following the Supreme Court order on adjusted gross revenue. The incumbent operators are expected to file a review petition, according to industry sources. The biggest impact will be on Vodafone Idea, who will be asked to pay around Rs 40,000 crore.
“There is no way Vodafone Idea can pay this amount and still have funds to invest in future network roll-outs. They would rather close operations, leaving just two players in the sector -- Reliance Jio and Airtel,” said an industry expert.
The impact of AGR ruling
In a statement, Vodafone Idea said, “Clearly, this judgement has significantly damaging implications for India’s telecom industry, which is already reeling under huge financial stress and is left with only four operators. Today’s order has a huge impact on two private operators, while most of the other impacted operators have exited the sector. We urgently request that the government engage on this matter in order to find ways to mitigate the financial stress for the industry.” Vodafone Idea still has the option to appeal to a five-member bench of the Supreme Court, and then to the Chief Justice of India. Shares of Vodafone Idea tanked 23.36 per cent on BSE at close on Thursday.
The impact on Bharti Airtel is estimated to be around Rs 35,000 crore. “This decision has come at a time when the sector is facing severe financial stress and may further weaken the viability of the sector as a whole,” said an Airtel spokesperson. Airtel shares were up by 3.31 per cent as investors expected the company to be better positioned to pay off the dues and continue to hold market share compared to Vodafone Idea.
The Supreme Court ruling will allow the Department of Telecom to raise demands of around Rs 1.3 lakh crore from the industry. Of this, Rs 92,000 crore is for dues related to licence fee. DoT can apply the apex court order to spectrum usage charges also, which is another Rs 40,000 crore. Nearly 50 per cent of the claim is against Airtel and Vodafone.
“The sector is already reeling under a daunting debt of approximately Rs 4 lakh crore, and is in dire financial straits as operators are making negative returns on their investments. The telecom EBITDA continues to contract, while the interest expense of the Industry continues to increase. The taxes and levies in the Indian telecom sector, ranging from 29 per cent to 32 per cent, are one of the highest globally. The Supreme Court’s judgement is the last straw in contributing to financial distress,” said Rajan S Mathews, Director General, COAI.
Govt may step-in
Industry experts are hoping that the Centre could step in to provide some relief. Sanjay Kapoor, former CEO of Airtel, said that the telecom industry is linked to a larger ecosystem of start-ups and equipment providers and any impact on the sector will have a cascading impact on the entire digital ecosystem. “The Government should take a liberal view of the court order and provide whatever relief it can legally. It should review some of the levies, taxes and the high cost of spectrum so that the industry has enough cash flow to fund future innovations,” said Kapoor.