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Don’t turn telecom into a two-horse race

  • The shorter 10-year window ordered by the Supreme Court for telecom companies to pay AGR dues will weaken their health that is already hurt by low tariffs. The government needs to intervene and set a floor for tariffs and defer spectrum liabilities if competition is to prevail.

The Supreme Court on Tuesday gave telecom companies 10 years to pay their adjusted gross revenue (AGR) dues, rejecting their demand for a window of 15-20 years. This is a blow for the operators who are already reeling due to a fierce tariff war unleashed by Reliance Jio, on top of the huge financial burden that the apex court’s acceptance of the department of telecom’s definition of AGR has resulted in.

Bharti Airtel, with its relatively stronger balance sheet and rising market share, might find it easier to pay the dues on schedule. But for Vodafone-Idea, the truncated timeline could further stretch its weakened financials. Reports suggest that mobile operators will need to fork out an estimated 7,853 crore annually. This will be hard for Vodafone-Idea, which reported a loss of more than 25,000 crore in the June quarter. It has also been losing subscribers. The prospect of Airtel gaining market share at its expense propelled the former’s shares 6% higher in Mumbai trading on Tuesday.

The big question thus is will Vodafone-Idea be able to survive? It could, provided its owners infuse fresh capital. Also, it will have to substantially raise tariffs to stay in business. This, however, will be risky in a price-sensitive market; with Jio holding tariffs low, such a move could send subscribers porting out. The government perhaps needs to intervene. It could introduce a floor price below which tariff shouldn’t be allowed to be set, and also defer spectrum liabilities. This might be the only way to ensure India’s telecom market does not turn into a two-horse race.

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