e-paper
e-paperNew
Vodafone Idea and Bharti Airtel together owe about 50,000 crore (File photo: Bloomberg)

Why govt should be first to protest its win in SC against Vodafone Idea, Airtel

  • Ironically, the govt stands to lose more by winning in the Supreme Court against the telcos
  • Most of the licence fee dues are from companies that are already bankrupt or facing bankruptcy

Regardless of who has been at the helm of affairs, the Indian government has been known to treat the telecom industry as the goose that lays golden eggs. For years, the industry met the expectations by buying spectrum at absurd prices, enriching the government in the process.

It’s another matter the goose has progressively grown weaker, and golden eggs have been a thing of the past. There seems to be a glimmer of hope, with the Supreme Court (SC) ruling that telcos need to pay the government licence fee dues, along with penalties and interest, amounting to more than 92,500 crore, according to numbers collated by the industry.

Ironically, this was a case the government was better off losing. It should now be the first to protest the court ruling.

Here’s why. More than 40% of the dues to the government, affirmed by the apex court ruling, need to come from firms such as Aircel Ltd and Reliance Communications Ltd, which have either filed for bankruptcy or shut shop.

The bulk of the remainder needs to come from Vodafone Idea Ltd and Bharti Airtel Ltd, which together owe about 50,000 crore, in a 4:3 proportion. Following the SC ruling, shares of Vodafone Idea fell by 23% to 4.35 apiece on Thursday. After all, its cash balance at the end of the June quarter stood at 21,200 crore, far lower than what is needed to meet the latest government demand.

(Graphic: Naveen Kumar Saini/Mint)

Traders expect telecom to be a two-player market soon, with Vodafone Idea crushed under the weight of the SC order. Therefore, even though Bharti Airtel needs to shell out a huge amount as dues and penalties, its shares rose 3.3% on Thursday in early celebration of the prospects of a duopoly. Shares of Reliance Industries Ltd (RIL), parent of market leader Reliance Jio Infocomm Ltd, rose 3.2% as well.

The big irony about the government winning in the apex court is that it stands to lose far more than what it would gain. Vodafone Idea owes the government roughly 90,000 crore in deferred spectrum payment dues. “If the court order is enforced, the government is likely to get neither the licence fee dues from Vodafone Idea nor the deferred spectrum dues," said an analyst at a domestic institutional brokerage firm, requesting anonymity. Talk of pyrrhic victories.

Of course, the moot question would be why the government has fought it thus far, if it stands to lose more, with yet another telco facing bankruptcy.

Perhaps it believes the future will be better with a duopoly, rather than with a struggling three-player market. Besides, it might be thinking that some of the licence fee dues may be used to revive Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd, and the two state-owned firms may stop being a burden on the exchequer.

Whatever the thought process, the fact remains that the government’s actions increasingly resemble the part in the fable where the goose is killed to get all the golden eggs at once.