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GlobalData calls for government to assist Indian telcos

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The Indian government must step in to assist the country’s top telcos in paying off around US$54.46 billion in debt, and bring an end to the “AGR storm” that has consumed the industry.

The calls, made by GlobalData, come as India’s Department of Telecommunications (DoT) estimated Bharti Airtel’s adjusted gross revenue (AGR) dues sit around $4.97 billion, while Vodafone-Idea’s stand at $7.40 billion.

Antariksh Raut, senior research analyst of telecoms market data and intelligence at GlobalData, says: “The payment of AGR dues will have least impact on Reliance Jio as the operator entered into the Indian market quite late in 2016. Bharti Airtel has some potential headroom to take on the burden of AGR dues considering its financials. However, Vodafone-Idea is in worst shape having cash and cash equivalents of US$1.75bn, as per December 2019 results, which is not at all sufficient enough to pay their statutory dues.”

The sector has come under even more pressure due to Supreme Court rulings on AGR dues.

History of a dispute

GlobalData says that since 2005, there has been an ongoing dispute between the DoT and the telcos in India regarding the definition of AGR, with the telcos asserting that only core revenue is considered for AGR calculation.

In October 2019 the Supreme Court ended more than 10-year proceeding by accepting DoT’s definition.  In February 2020, the Supreme Court came down heavily on telcos and directed them to pay the AGR liabilities at the earliest. 

An analysis of GlobalData’s Mobile Broadband Forecast Pack reveals that Vodafone-Idea will have 282.5 million subscribers with 23% market share by 2020 end. As Vodafone-Idea’s AGR dues are highest, it is a mammoth task for the company to repay the dues without any support from the government. Moreover, payment of such hefty dues will impact the company’s investments in future projects such as smart cities and 5G.

As Capacity reported in January the DoT appears to be on the side of the operators, which have faced unprecedented consolidation in the past two years – from 11 operators in the business to just three.

But the survivors are still in trouble. Just this week, one of the three, Bharti Airtel, approved plans to raise $3 billion in funds – $2 billion equity and $1 billion debt – at an extraordinary general meeting of shareholders.

In February, Vodafone Idea told the government that it cannot pay the $4 billion it owes in spectrum and other charges. The loss-making company has already paid the equivalent of $488 million, but says that, faced with a debt of $14 billion, it can pay no more. 

No concession

While the Finance Ministry is keen to work out relief measures for the sector, it is against providing any concession on payment of penalty as it may lead to a similar demand from other sectors.

However, DoT later filed an application in the Supreme Court, requesting that telcos be allowed to spread the payment of AGR dues over 20 years or less, at a reduced interest rate of 8%. A decision on the same will be taken on next Supreme Court hearing which is currently on hold due to the country’s Covid-19 lockdown, currently scheduled to end on 3 May.

Raut concluded: “The telecom sector plays an important role in the development of a nation, and in India it is expected to contribute 8.2% of GDP by FY20 once 5G is functional. Also, futuristic projects such as smart cities are fairly dependent on the strength of the telecom sector. But the recent ruling on AGR dues has led financial burden on incumbent operators which may impact such projects. As a result, the government has to put in measures to provide some relief to the operators so that they do not enter into fresh debts.” 

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