After Supreme Court's order, Airtel, Voda Idea ready strategy
Airtel & Voda Idea owe the government licence fees and spectrum usage charges, plus penalties and interest.
Executives of the companies plan to meet top government officials starting today on strategies, said people with knowledge of the matter. The two carriers have less than three months to pay what could add up to more than Rs 80,000 crore in licence fees and spectrum usage charges (SUC), following the Supreme Court order broadening the definition of adjusted gross revenue (AGR) to include non-core items.
Officials said the two are combing through the judgment and planning a financial and legal plan to raise funds that will allow them to stay viable.
“When the industry is under a death sentence, tomorrow looks like the least of your worries,” said Rajan Mathews, director general of lobby group Cellular Operators Association of India (COAI). “Certainly, 5G will be under the cloud of the ability of operators to continue their operations with any reasonable expectations of proper returns on their investment.”
He said the industry’s survival would depend on what the government did next. India’s telecom industry comprises three private companies—Bharti Airtel, Vodafone Idea, Reliance Jio and two PSUs— Bharat Sanchar Nigam and Mahanagar Telephone Nigam.
The latter two are on life support with the government announcing a plan last week to try and revive them.
Given the situation, 5G trials and auctions are the furthest thing on the mind, said the people cited above.
“We can’t participate in 5G auctions and trials. They’re nowhere among the top priorities,” said a senior executive at one of the two telcos. Another telco executive said the trials were “clearly on the backburner.” 5G is a key element of the next technological advance in communications.
The two phone companies didn’t respond to queries.
Bharti Airtel and Vodafone Idea are the companies affected most by the SC order--the latter more so because of its weaker balance sheet--with pending licence fees and spectrum usage charges dues of Rs 41,000 crore and over Rs 39,000 crore, respectively.
Last Thursday’s order paved the way for the Department of Telecommunications (DoT) to seek more than Rs 1.3 lakh crore in dues, penalty and interest from operators. The court said the dues need to be paid in three months. Telcos pay licence fees and spectrum usage charges annually to the government on the basis of AGR.
“The government has got a big question mark that it has to resolve. If industry becomes viable, then 5G is a subdivision of it... Whether it happens later or in parallel depends on what the government's response is to the SC order,” Mathews said. “Most operators will probably earn more by keeping their money in a savings account.”
Bharti Airtel and Vodafone Idea want the government to intervene, with the latter saying it will seek a waiver of penalties and interest. Vodafone Idea has said it may file a review petition but people with knowledge of the matter pointed out that few such pleas are successful.
ET reported on October 16 that the authorities could explore ways to soften the blow on the industry saddled with over Rs 7 lakh crore of debt. The options being considered include reducing interest and penalties, besides long-term measures such as lowering licence fees and spectrum usage charges besides fixing a floor for tariffs. But bureaucrats will be afraid of any future anti-corruption crusade that may characterise this as favouring a few companies, said the people cited above.
Bharti Airtel and Vodafone Idea have applied to participate in 5G trials along with vendors Nokia, Ericsson and Huawei and are awaiting spectrum allocation. The trials were among key projects that the government wanted to begin in its first 100 days, a deadline that passed in September. The next spectrum auctions, including 5G airwaves, are scheduled to be held by March 2020.
“The quantum and timing of cash outflow is uncertain as over 60% of outstanding dues include taxes and penalties,” Nitin Soni, director, corporates, Fitch Ratings, said in a report. “If Vodafone Idea were to pay $4 billion immediately, it would cause a severe stress on their balance sheet.”