A few days back I had written about the problems faced by Vodafone Idea (Vi) in paying the installments on account of adjusted gross revenue (AGR). As per the order of the Supreme Court, all the telcos are supposed to pay their dues within 10 years in installments. In between the SC/govt agreed that dues installments will start from the year 2022-23. Vi few days back announced that they are not in a position to start paying the installments from next week. This gives indications to all the concerned that Vi might file for bankruptcy and if that happens then the telecom sector will collapse in the country, and there will be lakhs of people who will be rendered jobless.
Now the news has come that the govt is exploring ways to allow telcos such as Vodafone, Idea, and Airtel to pay the adjusted AGR dues over 20 yeats instead of 10 years. Govt may seek legal opinion on possible ways to do this. The problem is any govt bid to relax the AGR payment period requires to take into account the SC order, which mandated the telcos to pay the dues over 10 years through March 2031. At that time also govt had recommended a 20-year time frame to pay these dues. Generally, the govt does not overrule the decision of the SC, but in this case, it has to keep the health of this sector, banks, employees, and the entire economic system in mind. Even when the case was decided in SC, the govt had presented a cabinet note on details of the numbers of installments which had the cabinet approval for the payment to be made in 20 years.
Now, any move which leads to a reduction in AGR dues or even the annual AGR installments will come as a relief to the loss-making Vi. The dues of Vi on account of AGR stand at Rs 58,254 Cr and out of this they have only paid Rs 7,854 Cr, and the company is facing a total debt of Rs 1.9 Lakh Cr. In reality, the company Vi needs to pay Rs 9000 Cr as its next AGR installment in March 2022. In the present scenario, the company is not in a position to pay the next installment. The company desperately needs relief in AGR dues, otherwise, it will be very difficult to survive.
On the other hand, Bharti Airtel is much stronger financially, it faces Rs 43,980 Cr in AGR dues, out of which they have already paid Rs 8000 Cr. The value of their installment on account of AGR is about Rs 4,500 Cr, to be paid in March 2022. Any reduction in installment amount will definitely help the company.
The govt is asking Vi to inform about the quantum of investment but details of the company’s medium-term plans, including how they expect the average revenue per user (ARPU) and related metrics to improve once the govt relief and consequent investment flow in the company. Vi has only said that investors would be ready to pump in money once the sector became viable, for which immediate relief in this sector is needed. Both Vodafone and Idea have so far maintained that they will not be investing funds into Vi.
The relaxation on the AGR payment timeliness is being discussed in govt, other steps to provide relief to the sector include reduction in license fees from the current 8% of AGR, and increasing the payment moratorium for the spectrum bought in auctions by another 2 years. As per the media reports, the moratorium can be extended by another 2 years, but the sector is asking for more.
The Department of Telecommunications (DoT) is also debating whether to reduce spectrum usage charges (SUC) not just prospectively but also retrospectively. In the end, the main intent of DoT is to restore the overall profitability of the telecom sector while retaining a 3+1 player market. ( in this case, 3 are Jio, Vi, and Airtel and 1 is BSNL). However, the relief package will be effective only if there are complementary measures undertaken by Vi. Without sufficient investment and strategic thinking by the company, the relief package may not ensure whether all the objectives are met.
In the end, it is a very dicey situation for Vi, now if they do not get relief and infuse new investments in the company, it is obvious that they will slowly start losing their consumers to Airtel and Jio. In my opinion, at the time of buying spectrum, these telcos never realised the high charges for spectrum use and afterward, AGR came. The market being very competitive with the entry of Jio and with call/data charges going down drastically, the profitability has gone down, and in this scenario how in the future Vi and Airtel will survive has to be seen. As Jio was a late entrant, it does not have to pay AGR dues, as it had already paid govt all the charges while entering the business. So it is very important for the govt if they want this sector to survive, the relief package and reduced spectrum charges will have to be given to this sector.
Let us wait and watch, about the future development in this issue.
Waiting for your comments and views.
Anil Malik
Mumbai, India
24th August 2021.
R. N. Mungale.
Insplte of cabinet note I think S. C. decided the case adversely. I think it is wrong.
Tejinder Singh Sethi
The government shouldn’t merge the loss-making Vi with BSNL. Let the promoters infuse capital and give them plenty of wavers for the next 3-4 years. Keeping it afloat is in the best interests of consumers, the government, and banks. The supreme court, on its part, should revisit the judgment and rectify the mistakes made by the ministry officials. The banks, on the other hand, should restructure the loans and avoid labeling the loans as NPAs for the next couple of years.