Fresh survival troubles for Vodafone Idea after the Supreme Court order

In a major setback for telecom operators Bharti Airtel and Vodafone Idea, the Supreme Court today dismissed their pleas for the re-calculations of the Adjusted gross revenue or AGR dues.

The Court refused to allow re-assessment of the AGR dues after the telcos cited arithmetic and calculation errors. The two telcos had pegged their dues much below (about Rs 43,000 crore) the Department of Telecom’s (DoT’s) estimates of Rs 1,02,234 crore.

The court’s order has caused an immediate impact on the stock prices of Vodafone Idea. Its stock price dipped over 7.5 per cent. Airtel’s stock was trading 2.2 per cent higher over the previous day though.

Experts say that the impact of the order will affect Vodafone Idea badly which is battling mounting losses and high debt. Just last month, the telco reported a net loss of Rs 6,985 crore in the March 2021 quarter.

Both telcos were hoping for some relief from the top court but the current order has literally shut down all doors for them. “It’s back to square one for Vodafone Idea which continues to face survival issues. The company has been losing money for some 11 quarters in a row,” a telecom consultant said.

A media report said Vodafone Idea has got approval from the DoT for its Rs 15,000-crore foreign direct investment proposal and this inflow of FDI would help Voda Idea in clearing some of the AGR dues while meeting the operational expenses.

“India has a unique opportunity to emerge as the destination of choice for FDI, but nothing scares a foreign investor more than a regulatory risk. The Supreme Court decision will be a blow to investor confidence,” says Utkarsh Sinha, managing director at Bexley Advisors.

Unlike Airtel, Vodafone is finding it difficult to keep its subscriber base intact. Between April 2020 and April 2021, Vodafone Idea lost 32.74 million subscribers while other two telcos have gained subscribers during the same period.

A large part of the Vodafone Idea’s troubles can be attributed to the low tariffs in the industry. Vodafone Idea, and Airtel to some extent, is facing the heat because of the reluctance of the market leader Reliance Jio to hike tariffs.

Vodafone Idea alone cannot raise tariffs as it would lead to bigger losses in subscribers. In the March quarter, Vodafone Idea’s ARPU or average revenue per user, a key industry metric to measure financial performance, stood at Rs 107 as compared to Rs 145 for Airtel and Rs 138.2 for Reliance Jio. So essentially Vodafone Idea is not just losing subs but it’s also not able to earn from its existing customers.

As per the September 2020 ruling of the apex court, Vodafone Idea and Airtel are required to pay their AGR dues in 10 annual instalments starting March 22 (after clearing 10 per cent of the dues by March 2021).

The SC has given three big judgements on the AGR issue so far. For example, in October 2019, the SC had asked telcos to pay Rs 1.69 lakh crore AGR dues to DoT. When telcos sought relief on the payments, the court asked them to pay off dues in 10 instalments.

However, in its second order, the Justice Arun Mishra-led bench had said that there shall not be any dispute raised by any telco, and there shall not be any re-assessment allowed to the telcos. Business Today