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Vodafone Idea Ltd (Vi) will continue losing market share, Goldman Sachs said on Tuesday, adding that it is unlikely that the telecom operator will increase investments in network as cash flows are expected to be negative even if its liability towards the government is lowered.

Comments by the American investment bank come after Vi, on 8 January, moved the Supreme Court seeking recalculation and modification of adjusted gross revenue (AGR) dues demanded by the department of telecommunications (DoT).

According to DoT, Vi owes 58,254 crore in AGR dues, including principal, interest, penalty, and interest on penalty. However, according to the telco’s self-assessment, it owes the government 21,533 crore. Vi has so far paid 7,854 crore.

“On our estimates, Vodafone Idea could potentially save 58 billion (5,800 crore) in cash flows annually if the AGR liability were lowered to its self-assessed value… We expect Vodafone Idea’s FCF (free cash flow) to remain negative for the foreseeable future, irrespective of the level of company’s AGR dues," Goldman Sachs said in a report.

Vi, in its plea, cited errors in calculations such as duplications and inclusion or exclusion of revenue heads, including spectrum usage charge and licence fee, and certain payments that have not been factored in. It also urged the apex court to modify its September 2020 order that approved DoT’s AGR demand.

Investments in network could improve the quality of Vi’s services and curb the loss of millions of customers every month. According to Telecom Regulatory Authority of India (Trai) data, Vi has lost 26.3 million subscribers in the first seven months of the current financial year.

Rival Bharti Airtel Ltd also lost users in the initial months of the lockdown when millions left for their hometowns but the telco has been gaining market share as the economy reopens. Reliance Jio Infocomm Ltd was the only operator, among the major ones, to have added subscribers even during lockdown and is the largest telco by market share.

On Tuesday, Goldman Sachs said reduction in AGR dues to self-assessed levels, if allowed by the apex court, would not change the telecom industry’s competitive landscape.

“While incrementally positive for Bharti Airtel and Vodafone Idea from a cash flow and net-debt standpoint, we believe AGR dues at the lower self-assessed levels would have little-to-no impact on the industry’s competitive landscape," it said.

DoT has demanded 43,980 crore from Airtel, which is more than three times the self-assessed amount of 13,004 crore. Airtel has so far paid 18,004 crore to the DoT.

Goldman Sachs expects sharp improvement in Airtel’s cash flows starting fiscal year 2022, provided AGR dues are lowered to the self-assessed amount. This would help the telco use part of the capital for faster launch of 5G (fifth-generation) mobile services.

“For Bharti Airtel, we expect FCF to see a sharp improvement starting FY22; we forecast the company to generate at least US$2 billion in FCF in its India business, a part of which could potentially be deployed for a faster 5G roll-out," it said.

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