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Telecom companies on edge after government's revenue estimate fails to add up

For a sector nervous over the coming AGR blow, Sitharaman's Budget has obfuscated matters even more.

, ET Bureau|
Last Updated: Feb 05, 2020, 11.50 AM IST
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Agencies
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Will fall short of Rs 1.33 lakh-cr target without AGR dues: Analysts
MUMBAI: Telecom operators and analysts said they were at a loss to understand the government's budgetary estimates for the current and next financial years for the sector, saying the numbers don’t add up if the adjusted gross revenue (AGR) dues or part of the dues are not factored in.

They told ET that the upcoming spectrum auctions would generate Rs 40,000-50,000 crore as upfront revenue and, along with the licence fee of Rs 20,000-25,000 crore and spectrum usage charge, would fetch the government around Rs 75,000 crore, a far cry from the Rs 1.33 lakh crore budgeted for 2020-21.

“We are at a loss to understand the doubling of expected revenue from the telecom sector and we await clarity on the components of the budgeted amount,” said Rajan Mathews, director general of Cellular Operators Association of India (COAI) – an industry body that represents private players Bharti Airtel, Vodafone Idea and Reliance Jio Infocomm.

The budget presented last Saturday estimated a revenue of Rs 58,686.64 crore under communications head in the current fiscal against the budgeted amount of Rs 50,519.8 crore. The government raised its revenue estimate twofold to Rs 1,33,027.2 crore for the next fiscal.

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Economic affairs secretary Atanu Chakraborty said on Monday that AGR dues were not factored in the estimates for 2020-21 since the matter was sub judice.

A Supreme Court order of October 24, 2019 on AGR left telcos facing an outgo of Rs 1.47 lakh crore on account of licence fees, spectrum usage charge, interest and penalties. Vodafone Idea was the worst hit, with dues of more than Rs 53,000 crore, followed by Bharti Airtel, with dues of more than Rs 35,500 crore, and Tata Teleservices, which has to pay nearly Rs 14,000 crore.

The three telcos have filed a petition in the Supreme Court, urging that they be allowed to negotiate modalities and time frames for payment, hoping that they are allowed to pay over several years, thereby softening the financial blow. The apex court is yet to hear the matter.

Without these AGR dues, or at least part of them, achieving the budgeted estimates would be difficult, said experts.

“Assuming nothing is coming from the AGR for FY21, a lot of expectations are being built around the 4G and 5G auctions, which looks very optimistic in the current scenario given the leveraged balance sheet of the telcos and the nascent stage of 5G in Indian ecosystem,” said Rajiv Sharma, head of research at SBICap Securities.

The next auction is expected to be India’s largest so far, with 8,293.95 MHz of airwaves at an estimated total base price of Rs 5.77 lakh crore expected to go under the hammer.

But, with tepid participation expected in 5G auction, given the high starting price, the play will mainly be for a pie of spectrum worth around Rs 3.5 lakh crore, said an industry executive, who did not wish to be identified.

The airwaves are expected to be sold in the first quarter of next fiscal and, industry analysts said, even an upfront payment of 25-30% would not fetch the government more than Rs 40,000–50,000 crore.

“The only way the DoT (Department of Telecom) may come close to achieving its target for FY21 is if it includes AGR of at least Rs 40,000 crore. For the current fiscal, the government should factor in an upfront AGR payment of Rs 20,000-25,000 crore from the telcos if it intends to meet its target,” said the executive.

The budget estimates would be even more difficult to achieve if the SC does not offer relief to the telcos, and Vodafone Idea is forced to shut shop. “If Vodafone Idea shuts down, then there could be some rush for 4G spectrum in the upcoming auctions, but even then, the given estimates will look optimistic,” said the executive.

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