Telcos welcome relief package, but analysts are divided on whether it is enough

All the three telcos – Airtel, Vodafone Idea and Reliance Jio – have welcomed the telecom relief package, stating that it will help the telecom sector de-stress and unshackle. But analysts are divided on how effective these reforms will be, especially for Vodafone Idea.

At the outset, the telecom relief package benefits Airtel and Vodafone Idea the most. It’s especially critical for the latter which is fighting for its survival and running on fumes, with a cash balance of just ₹920 crore at the end of the June quarter and debt worth ₹1.9 lakh crore.

Vodafone Idea’s shares surged by nearly 15% as of 9:30 a.m., while Airtel was marginally down by 0.2%.

Vodafone Idea and Airtel welcome the package, but say more needs to be done

Vodafone Idea’s promoter, Kumar Mangalam Birla, has been vocal in highlighting the stress that the company is going through, and even offered his 27% stake in the company to the government.

“The pathbreaking reforms announced by the government today will go a long way in unshackling the telecom sector,” Birla said after the Telecom Minister Ashwini Vaishnaw announced the cabinet decisions on September 15.

Nick Read, the chief executive officer of the Vodafone Group, the largest promoter of Vodafone Idea, said this could be the “beginning of a new era” for India’s digital ambitions.

He did mention that the company will need “continued strong support” from the telecom and finance ministries. Reading between the lines, it does seem that he acknowledges Vodafone Idea needs more than what has been offered in the package.

“The latest reforms ensure that the industry is able to invest fearlessly and support India’s digital ambitions,” said Sunil Mittal, chairman, Bharti Airtel.

However, the company’s chief executive officer and managing director, Gopal Vittal, was forthcoming in his remarks. “More needs to be done, however, towards a sustainable tariff regime to ensure the industry gets a fair return,” he said.

Not much changes for Reliance Jio, on the other hand, which leads the Indian telecom sector, and has negligible exposure to the adjusted gross revenue (AGR) and spectrum dues.

“Telecom sector is one of the prime movers of the economy and the key enabler for making India a Digital Society, I welcome the Government of India’s announcement of reforms and relief measures that will enable the industry to achieve the goals of Digital India,” said Mukesh Ambani, chairman, Reliance Industries.

Analysts divided on whether the reforms are adequate
While Airtel and Vodafone Idea will get a breather from the telecom relief package, analysts are divided on the adequacy of the announcements.

The highlight of the package is the AGR moratorium of four years, but it is worth noting that this is merely a deferment and not a reduction in AGR liability. Both Airtel and Vodafone Idea will have to repay AGR dues worth ₹25,976 crore and ₹50,339 crore, respectively.

“The deferment for AGR dues cannot be construed as waiver since the package only envisages a moratorium of four years on such AGR dues from 1st October 2021 (appointed date) with the interest and penalties accruing for such deferral,” said Akshat Jain, partner at J Sagar Associates.

“While this will temporarily provide some relief, it does not essentially alleviate the already bleeding balance sheets of the telecom operators since the dues will ultimately have to be paid with interest,” he added.

Nitin Soni, senior director at Fitch Ratings, said that the relief package will provide cash flow relief to the telecom sector thanks to the moratorium, but he was not optimistic about Vodafone Idea’s prospects.

“Specifically on Vodafone idea, it is unlikely to salvage the company’s competitive position given its subscriber losses, declining average revenue per user (ARPU) and insufficient cash generation to fund interest cost,” he told Business Insider.

Others had a slightly different viewpoint, stating that these measures are more long-term in nature and the certainty about specific aspects like spectrum roadmap is a positive.

“I particularly like the step that a spectrum roadmap will be announced by the government in advance, which will infuse the much-needed certainty for the operators,” Jaideep Ghosh, chief operating officer, Shardul Amarchand Mangaldas & Co., told Business Insider.

Peeyush Vaish, partner at Deloitte India, said, “Rationalizing the definition of AGR by excluding the non-telecom revenues and 100% FDI, gives a clear signal to the foreign investors that India is committed to bring in reforms”. Business Insider