After the Supreme Court dismissed the review petitions filed by Vodafone Idea in the Adjusted Gross Revenue (AGR) matter, the stock of Vodafone Idea crashed by as much as 34% on Friday. As of 12 pm, it was trading down 22% at around Rs 4.69 a share on the Bombay Stock Exchange. It closed 25.83% down at Rs 4.45 

This came at a time when ailing telecom companies were desperately hoping for some relief, either in the form of reversal of the earlier order, reduced liabilities, or a larger payment window. The Supreme Court gave its verdict on AGR in October 2019, and companies have till January 23, 2020, to pay their dues. 

The verdict even led to Bharti Airtel and Vodafone Idea showing humongous losses for the quarter. 

“Having perused the Review Petitions and the connected papers with meticulous care, we do not find any justifiable reason to entertain the review petitions. The Review Petitions are, accordingly, dismissed,” the SC order read.

The review plea’s dismissal was a big blow to Vodafone Idea, which had posted a net loss of Rs 50,921 crore in Q2 of FY 2019-20, the largest quarterly loss in India’s corporate history. The company has an AGR liability of Rs 44,200 crore.

On Thursday, Vodafone Idea said that the company is exploring further options, including filing a curative petition. A curative petition is the final remedy available after a review petition has been dismissed by the apex court.

Several analysts and market observers are doubtful about how Vodafone Idea will be able to pay its AGR dues.

According to Rajiv Sharma, Head of Research at SBIcaps, if Vodafone Idea doesn’t have enough funds to pay its AGR dues by January 23, it may have to refer itself to the National Company Law Tribunal (NCLT) and could eventually result in the company shutting shop.

Motilal Oswal Financial Services also told clients in a note that Vodafone Idea was counting on relief, since it has cash only to operate for the next 2-3 quarters.

However, there may be some respite. Bloomberg earlier reported that the government is open to suggestions that could help ease payment of dues. According to sources, this could include interest-free dues or the leeway to be able to pay the amount in tranches.

Rajiv says that if that happens, the burden on Vodafone Idea to pay the full amount of Rs 44,200 crore at once will reduce. 

“It’s not a great scenario, but it is doable because there will still be capital expenditure. It may lower Vodafone Idea’s ability to invest, but it will be able to stay afloat — albeit with a declining market share,” Rajiv said.

Following its disastrous financial results for Q2 of FY 2019-20, Vodafone Idea appealed to the government for relief. “It is to be noted that our ability to continue as a going concern is dependent on obtaining the reliefs from the government,” the company had said in a statement when it announced its results.

Even before Vodafone Idea posted massive losses, Vodafone CEO Nick Read said that Vodafone’s joint venture in India may soon have to be liquidated, citing “unsupportive regulation” and “excessive taxes” as reasons. He noted that the company’s future was in peril unless the Indian government provided relief on mobile spectrum fees.

Vodafone Idea’s survival is important for the market, because if it exits, it leaves the Indian telecom industry as a duopoly with Reliance Jio and Airtel. 

Rajiv said that a three-player market is an optimal structure in large markets, as India has pioneered itself as a cost-sharing market. “Telecom is a cost-intensive industry and cost-sharing makes them more productive and capital efficient. With just two players, it might be difficult to share costs. CCI (Competition Commission of India) may not favour it either,” he said.

It might, however, be a good thing for players as it will give them pricing power and bargaining power with vendors, given the high volumes in the Indian market. But a two-player market, according to Rajiv, isn’t ideal for customers and stakeholders. “Customers and several industries have benefited from low tariffs in the country. But if there are more tariff hikes in the event of a two-player market, the question will be if it is customer-friendly,” he added.

The government too, has said in the past that it doesn’t want any company to shut operations. FM Nirmala Sitharaman said in November 2019, “I want no company to shut operations. I want everyone to be up and running. We want the economy to have good number of companies in business and flourish in their business.”

On Thursday, ahead of the SC order on the review petition, Rajan Mathews, Director General of industry body Cellular Operators Association of India told IANS that the government isn’t interested in a duopoly and that the industry has hinted they too are not interested in a duopoly.

However, the only relief that came from the government was a moratorium for spectrum dues.

Making matters worse, TRAI data for subscribers in November showed that while Reliance Jio added 56 lakh customers and Bharti Airtel added 16.6 lakh customers, Vodafone Idea lost 3.64 crore users in the same month.

Airtel too, had posted a net loss of Rs 23,045 crore in Q2, following the AGR verdict. It has Rs 35,500 crore in AGR dues.

In a statement after the review plea was dismissed by the Supreme Court, Airtel said that it too is evaluating on filing a curative petition in the case.

“The money now required to pay punitive interest, penalty and interest on penalty which forms nearly 75% of AGR dues, would have better served the digital mission of the country,” it further added.

Bharti Group chairman Sunil Mittal had said in December that the situation of the telecom industry in India is ‘dire’ and that if telcos end up having to make AGR payments to the government and continue to operate under the current loss-making regime, the telecom industry could collapse.

“The situation is dire — it is a matter of survival for everyone. Vodafone (Idea) is in losses, Airtel is in losses, (state-owned) BSNL (Bharat Sanchar Nigam Ltd) is in losses,” an Economic Times report quoted Mittal as saying at the time.

However, Airtel, which also has a huge AGR liability, seems to be in a better position to pay off its dues. In the event of a two-player market, analysts are of the opinion that it would be a great boost to Airtel. Confidence on this front was also seen among investors, with Airtel’s stock soaring by over 6%, nearing its 52-week high levels.

Even prior to the verdict, both companies raised funds to meet the liabilities. While Airtel has raised $3 billion in debt and equity, Vodafone Idea tweaked its Rights Issue proceeds clause to be able to use the funds to partly meet the statutory dues.  

Now, it remains to be seen if the government comes forward to offer any relief to telcos, especially to Vodafone Idea and what steps Vodafone Idea and Airtel take to pay off dues, which need to be cleared in the next one week.