Rs. 92,000 Crore Telecom Fine May Have A Ripple Effect On Digital Economy

Two weeks after the country’s top court ordered the telecom industry to pay Rs. 92,000 crore in dues to the government, operators have pinned their hopes on a government panel that was set up to suggest relief measures for the sector that is struggling with heavy debt and mounting losses.

The relief measures, experts said, will not only help the telecom industry stay viable and protect billions of dollars in investments, but also prevent the digital economy, which runs on the mobile services infrastructure, from being disrupted.

“The demand of Rs. 92,000 crore will dampen the sentiment of telecom operators, and raising funds for broadband, network expansion and Digital India will hit a significant roadblock. The impact is not limited to telecom operators but will have a domino effect on the larger digital value chain. This requires immediate intervention by all stakeholders to get the sector back in shape,” said Prashant Singhal, emerging markets, technology, media and telecom leader, EY India.

Following the court verdict, the Centre last week set up a Committee of Secretaries under the cabinet secretary to suggest measures to alleviate financial stress in the sector. The Cellular Operators Association of India (COAI) has sought an easier payment schedule for spectrum bought in previous auctions, waiving penalty and interest arising out of adjusted gross revenue (AGR) dues, and a 14-year period to pay the principal amount of AGR dues.

“We expect they will independently evaluate the situation and make the right decision for the country, its citizens and the industry,” Rajan Mathews, director general, COAI, said.

Bharti Airtel and Vodafone Idea, which reported losses in the June quarter, were the worst hit by the apex court order.

Bharti Airtel’s dues are roughly Rs. 21,682 crore, while Vodafone Idea will need to cough up at least Rs. 28,309 crore. In contrast, Jio’s dues are just Rs. 13 crore. There is no other private operator left in the sector. Aircel and Reliance Communications are bankrupt and Tatas have sold their business to Airtel.

“In a cruel twist of fate, the two companies which actually survived the competitive intensity post Jio’s entry and the consolidation that followed in the three years have effectively been penalised by the verdict on AGR. No one will knock on the doors of companies that shut shop but owed money to the government,” a senior industry executive said requesting anonymity.

A bruising price war, initiated after Reliance Jio launched services in September 2016 at rock bottom tariffs, has left Bharti Airtel Ltd and Vodafone Idea Ltd bleeding financially. In addition, the continuous need for large capital investments and spectrum acquisitions through auctions has resulted in ballooning debt.

If the current wave of consolidation further reduces the number of operators, India may become a monopoly or a duopoly market which will not only reduce customer choices but may potentially lead to higher prices for telecom services.

The DoT is yet to formally issue demand notices to operators.

These dues, incumbent operators believe, will be the straw that breaks the camel’s back.

“Vodafone Idea’s future depends on relief measures at this stage. If it goes to NCLT, the government will not be able to recover even the spectrum dues that the company owes for airwaves bought in the past. If that happens, the question of recovering AGR dues goes out of the window,” the executive cited above said.

The stress on Vodafone Idea is clear from the fall in its stock price. It was Rs. 30 on 31 August 2018, when it started trading as a merged entity. On Monday, the share price closed at Rs. 4.51.

After the verdict, even Bharti Airtel has postponed its September quarter earnings as it awaits clarity from the government.

“We fully respect the SC’s ruling which deals with the past, but believe an independent arm of government can make policy decisions going forward that impact the citizens, economy and industry for the betterment of all,” Mathews said.―Livemint