The Indian telecom industry is currently staring at a possible duopoly, which even the government has expressed that it isn’t too keen on.
Telecom companies have to pay the government Rs 92,000 crore by Thursday. Airtel might be able to manage its share of the dues, but for Vodafone Idea, it could mean the end of the road.
After being dealt the blow of paying up nearly Rs 92,000 crore to the Department of Telecommunications (DoT) over dues regarding Adjusted Gross Revenue by the Supreme Court — the deadline for which is January 23 — Airtel, Vodafone Idea and Tata Teleservices approached the apex court to be allowed to work out a payment plan. The court has agreed to hear their plea next week.
However, while this was initially presumed to be an understanding that the companies did not have to pay their dues by this deadline, this may not be the case. On Tuesday evening, the DoT said that it would stick to the SC’s original deadline for the dues to be paid as there is no stay on that order.
"We interpret it as the deadline of January 23 stays since the Court has not stayed the October 24 order. We will expect them (telecom firms) to honour the order and any failure from their side will be treated as non-compliance and appropriate penalty will be levied," a source told IANS. Airtel owes Rs 35,586 crore and Vodafone Idea owes about Rs 44,150 crore in AGR dues.
This, even as the government has said that a two-player market (Airtel and Jio) is not ideal for the country.
While this has put a spanner in the works, the minimum that telecom companies are hoping for is staggering the debt repayment, instead of paying it upfront. Staggered payment would mean that they will be able to pay what they owe over a period of years.
Rajan Mathews, director of the Cellular Operators Association of India (COAI), said, “We are not contesting the Rs 92,000 crore due anymore, but tell us how you (DoT) expect us to pay the money going forward, what is the number of years you want us to pay in. What is the interest rate that would apply, would there be a two-year holiday period in between - those would be the main areas.”
Telecom analysts are of the view that staggered payment is the minimum that needs to be done.
Sanjay Chawla, a telecom research analyst at JM Financial Institutional Securities Ltd told TNM that if things are to get better, the least the government would need to do is to collect the payment over maybe 15 years at a nominal interest rate. "This way, the annual liability will come down to Rs 4,000-Rs 5,000 crore for Airtel and Vodafone Idea. That is relatively more manageable from a near term point of view so there's no distress sort of a situation emerging for Vodafone Idea.
SBICap Securities Head of Research, Rajiv Sharma also said that the best outcome would be to stagger payments over the long term of upwards of ten years without interest.
The situation is dire, but more so for Vodafone Idea, if it doesn’t get help to tide over the crisis. As Vodafone’s global CEO Nick Read and Idea Chairman Kumar Mangalam Birla said, the company will have to shut down if it doesn’t receive any aid from the government.
Chawla added that if the government wants to go the distance and do extra bit for the industry, they must waive off the interest on the penalty, which could reduce the amount calculated so far by 30%. “This amount can then be spread over 10-15 years, making the annual outgo even lower,” he said.
Telecom analyst Kunal Bajaj says that apart from staggered payment, the other option is to continue to lobby the government to take measures.
“An option is to continue to lobby the government to step in and look at the options available for looking at the interest, the penalty, and the interest on penalty. The last option is that the government can always step in and take a policy call, because the Supreme Court ruled on a particular piece of policy, which was a law passed by the government in the 1990s,” he said.
Policies change over time, and this too is something the government can look at, he added.
On a similar vein, Rajan Mathews added that a redefinition of AGR is something that needs to be looked into, as the matter has now been settled by the court and now, could be redefined to only look at telecom related revenue.
Sanjay Chawla concurred, and said that this is something the government must look into, along with reducing licence fees. "DoT can reduce the license fee from 8% to say 5% or 6% to further cushion the blow," he said.
Currently, telecom operators pay around 3-5% and 8% of the AGR as spectrum usage charges and licence fees. COAI wants this to be reduced to 3% and 1% respectively.
"If the government does nothing, then we could have a situation where Vodafone Idea would have to approach the NCLT and file for bankruptcy, because the company simply can't pay up the humongous AGR dues of Rs 40,000-45,000 crore," Sanjay Chawla said.
On measures to be taken to pull the industry out of the doldrums, Rajan Mathews believes a combination of “debt restructuring, adjusting AGR, reduction in licence fees and spectrum usage charges, and increase in tariffs proposed,” will help to put the industry on a good financial footing.