New Delhi: With the Supreme Court dismissing pleas by telcos to review its earlier judgement that had asked operators to pay more than ₹1 trillion of dues, the ball is now in the government’s court but the probability of relief measures seems low and the sector may be headed for a duopoly, analysts believe.
Apart from the high risk of Vodafone Idea going bankrupt, ripples of the decision are set to hit the overall investment appetite of operators at a time when the world braces for 5G deployment and India dreams of a $5 trillion economy by 2024.
“With the Aditya Birla and Vodafone groups unwilling to infuse equity in Vodafone Idea, we see a strong possibility of Vodafone Idea going for bankruptcy. Further, we believe there is limited scope for government help given the involvement of Supreme Court," Credit Suisse said in a note on Friday.
After their pleas were dismissed, Bharti Airtel, which has to pay ₹35,586 crore to the government by 24 January, and Vodafone Idea, which owes the government ₹50,000 crore in dues related to adjusted gross revenue (AGR), said they were evaluating filing curative petitions.
“The SC’s dismissal of the telcos’ review petitions on the AGR case leaves Bharti Airtel and Vodafone Idea with a curative petition as the last available legal remedy. In case that fails as well, the ball moves to the government’s court; the government’s stance thus far suggests discomfort with offering any relief unless the SC allows it the flexibility to do so. This stance may change but the probability seems low," Kotak Institutional Equities Research said in a note dated 16 January.
To be sure, curative petitions are rarely admitted and the petitioner has to establish that there was a genuine violation of principles of natural justice.
The 14-year old tussle started when telecom operators had challenged the way the department of telecommunications (DoT) calculated AGR, based on which they pay licence fees and spectrum charges. Licence and spectrum charges are calculated at 8% and 3-5% of AGR, respectively.
The 24 October court order upheld the government’s definition of revenue, which defined AGR as all revenues of a licence holder, including those from non-core telecom operations such as rent, dividend and interest income. This dealt a body blow to Bharti Airtel and Vodafone Idea, which are already battling cheap tariffs from Jio and large debt on their books.
However, Bharti Airtel, despite its liabilities to the government, will actually benefit in the long run in a two-player market.
“Bharti Airtel, in our view, should be able to pay as, apart from internal resources, it has also recently raised $3 billion through equity and FCCBs. We think potentially higher revenue and market share in a two-player market should offset the impact of AGR payment as well as a likely erosion in the value of Bharti Infratel," BNP Paribas said in a note on 16 January.
If Vodafone Idea goes bankrupt, Bharti Airtel will be best placed to absorb a chunk of 2G and 3G users given that Reliance Jio is a pure 4G network. Bharti Airtel will, however, need to pump in more resources in upgrading its network to onboard subscribers.