India’s telecom industry may be headed towards a duopoly with the Supreme Court coming down heavily on the telecom companies in the country for not paying their AGR dues. Taking a strong note of telecom companies not complying with its order, the SC directed telcos to pay up AGR (Adjusted Gross Revenue) dues by March 17. It also asked the managing directors and directors of telcos and other firms to explain why contempt action should not be taken against them.
This is a major blow to the already ailing telecom industry that has been desperately hoping for some relief from the top court.
Making matters worse, PTI reported on Friday that the Department of Telecommunications (DoT) ordered Vodafone Idea, Bharti Airtel and others to pay their AGR dues before midnight.
This is after the Supreme court took a strong view on DoT as well directing it to withdraw its order that said that no coercive action will be taken against telecom companies defaulting on statutory dues payment.
That leaves telecom companies with less than a day to cough up a massive amount. Vodafone Idea owes over Rs 50,000 crore, Bharti Airtel Rs 35,586 crore and Tata Teleservices has to pay Rs 14,000 crore. Jio, which has dues of only Rs 60 crore has made its payment already.
Vodafone Idea has maintained ever since the SC’s October verdict that in the absence of any relief, it may have to shut operations in the country.
On Thursday, when Vodafone posted its Q3 results, it expressed concerns over its survival.
“The existing material uncertainty on account of pending liabilities casts a significant doubt on its ability to “continue as a going concern,” Vodafone Idea said in a statement.
"The company's ability to continue as a going concern is essentially dependent on a positive outcome of the application for modification of the 'Supplementary Order' before the Supreme Court and subsequent agreement with DoT for the payment in instalments after some moratorium and other reliefs,” it added.
On Friday, after the SC direction, Vodafone Idea’s stock fell by over 20% closing 23.21% lower at Rs 3.44.
Telecom expert Piyush Jain says that while Airtel has the money, Vodafone Idea doesn’t. “Vodafone PLC doesn’t want to invest anymore into Vodafone Idea. It doesn’t have enough to make payments at short notice. I don’t think they will be left with an option. I doubt any sovereign fund will come in overnight and put in money.”
Several industry veterans and analysts speaking to CNBC TV18 also expressed a similar view – that the Indian telecom sector may be headed towards a duopoly of Bharti Airtel and Jio.
"We don't see the situation for VIL being salvaged without government intervention. Apart from other stakeholders in VIL, the government too could be one of the most impacted parties if the company shuts down as it is owed Rs 900 billion in deferred spectrum dues, besides the AGR liability," ICICI Securities said in a note last month.
However, Vodafone Idea has not yet commented on the SC direction.
Meanwhile, employees too seem to be concerned about the survival of the company. An employee working at a Vodafone store who didn’t wish to be named said that everyone was worried about losing their jobs at a time when the economy is fragile. He also said that subscribers have been flocking enquiring about porting out of the network.
“Dear Modi ji, Pl relax and help Vodafone Idea for payment of AGR dues. We already do not have any job due to closure of so many telecom companies. My only source of income is job in Vodafone Idea. Pl help us from being jobless,” a tweet from an employee stated.
Airtel has raised $3 billion in debt and equity last month. So, while it won’t make things better for the telco, it will still be able to pay its dues. Bharti Airtel posted a consolidated net loss of Rs 1,035 crore in Q3 (Oct-Dec) and hinted at further hike in tariffs.
In fact, Bharti Airtel CEO Gopal Vittal said earlier this month that the existence of its rival Vodafone Idea is critical for India to remain a three-private player market since that would bring investments, prevent job losses and restore the reputation of the struggling industry.
"I think Vodafone Idea will remain and I wish it thrives... it is important that India remains a three-player market as that is good from all perspectives, (as in), investments, jobs and reputation," Vittal said on a post-earnings call.
This came after Vodafone global CEO Nick Read reiterated during Vodafone’s Q3 earnings call that the situation in India is critical.
“Specifically, we have requested an immediate two-year moratorium on spectrum payments, a lowering of license fees and taxes, the waiving of interest and penalties on the AGR case and the ability to make the payment on the principal over 10 years with a two-year moratorium,” Read said during the earnings call.
The industry, the government and telecom experts have said in the past as well that duopoly is not an ideal situation for India’s telecom market.
In an earlier conversation with TNM, Rajiv Sharma, Head of Research at SBIcaps said that a three-player market is an optimal structure in large markets, with India being 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 told TNM at the time.
The government too, has said in the past that it doesn’t want any company to shut operations. In November 2019, Finance Minister Nirmala Sitharaman had said, "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."
The AGR issue originated in 1999, when telecom operators migrated to a new system offered by the government under which they agreed to share a certain percentage of revenue with the government. Operators argued that AGR should comprise only revenue from telecom services, but the DoT insisted that it should include all revenue earned by an operator.
After a long legal battle, in October 2019, the Supreme Court upheld the government’s definition of AGR and asked telecom companies to clear all existing dues that amount up to Rs 1.47 lakh crore in total.