OTSC case withdrawal to reduce telco litigation

Any potential government decision to withdraw its appeal in the one-time spectrum charge (OTSC) case, and instead opt for a mechanism akin to ‘Vivaad se Vishwas’ (VSV) for settling ongoing legal cases would sharply reduce litigations in the telecom sector, analysts said.

“The government’s stance of seeking to reconsider its OTSC petition is in line with recent news reports of it considering to settle disputes with telcos outside court on the lines of its ‘Vivaad se Vishwas’ scheme… if this is implemented, it can go a long way to reduce litigations for the telecom sector,” Credit Suisse said in a note.

On Tuesday, the Supreme Court had adjourned hearing the OTSC case till November 17, after the Department of Telecommunications (DoT) sought another three weeks to reconsider continuing with its appeal against an earlier telecom tribunal decision. The (OTSC) case is a high stakes legal battle between the telcos and DoT over payment of statutory dues which began about a decade ago. It reached a flashpoint when the Telecom Disputes Appellate Tribunal (TDSAT) ruled in July 2019 that the charges could be levied prospectively, not retrospectively.

Bharti Airtel and Vodafone Idea (Vi) will be the most impacted by the OTSC case outcome. DoT has pegged Airtel’s OTSC dues at Rs 8,414 crore. Airtel recorded Rs 1,807.5 crore charge towards OTSC in 2019-20, and treated the balance Rs 6,606.5 crore as a contingent liability. Vi, in turn, has said its OTSC accruals till March-end, 2021, was at Rs 4,389.8 crore, for which it has provisioned in its financials. Vi has also said in its FY21 annual report that it’s yet to receive the revised OTSC demands from DoT, post the TDSAT order.

“Bharti Airtel and Vi have made provisions for 67% and 53% of the total OTSC demand by the government…but, any settlement with the government at amounts lower than the provisions created will likely lead to a reversal of provisions and exceptional gains for these telcos,” Credit Suisse said.

Both Airtel and Vi shares closed 1.12% lower at Rs 691.40 and Rs 11.44 respectively on BSE.The Swiss brokerage, though, said that “its unlikely” that any new (settlement) scheme between the government and the telcos “will be able to reduce existing AGR or spectrum debt dues”.

If DoT withdraws its appeal, it will be the latest government move to help a financially stressed telecom sector whose stakeholders, including banks, have appealed for help. Financial Story