Government aid is required to sail Indian telcos from AGR storm, says GlobalData

The telecom sector in India, which is already reeling under a debt of around US$54.46bn, has come under more pressure due to the recent Supreme Court ruling on adjusted gross revenue (AGR) dues, says GlobalData, a leading data and analytics company.

Since 2005, there has been an ongoing dispute between the Department of Telecommunications (DoT) and the telcos in India regarding the definition of AGR, with the telcos asserting that only core revenue is considered for AGR calculation.

In October 2019 the Supreme Court ended more than a decade old proceedings by accepting DoT’s definition.  In February 2020, the Supreme Court came down heavily on telcos and directed them to pay the AGR liabilities at the earliest.  As per DoT estimates, Bharti Airtel owes the government around US$4.97bn and Vodafone-Idea owes around US$7.40bn in AGR dues.  

An analysis of GlobalData’s Mobile Broadband Forecast Pack reveals that Vodafone-Idea will have 282.5 million subscribers with 23% market share by 2020 end. As AGR dues of Vodafone-Idea are highest, it is a mammoth task for the company to repay the dues without any support from the government. Moreover, payment of such hefty dues will impact the company’s investments in future projects such as smart cities and 5G.

Antariksh Raut, Senior Research Analyst of Telecoms Market Data & Intelligence at GlobalData, says: “The payment of AGR dues will have least impact on Reliance Jio as the operator entered into the Indian market quite late in 2016. Bharti Airtel has some potential head-room to take on the burden of AGR dues considering its financials. However, Vodafone-Idea is in worst shape having cash and cash equivalents of US$1.75bn, as per December 2019 results, which is not at all sufficient enough to pay their statutory dues.”

While the Finance Ministry is keen to work out relief measures for the sector, it is against providing any concession on payment of penalty as it may lead to a similar demand from other sectors. However, DoT later filed an application in the Supreme Court, requesting that telcos be allowed to spread the payment of AGR dues over 20 years or less, at a reduced interest rate of 8%. A decision on the same will be taken on next Supreme Court hearing which is currently on hold due to Covid-19 lockdown till 3rd May 2020.

Raut concludes: “The telecom sector plays an important role in the development of a nation, and in India, it is expected to contribute 8.2% of GDP by FY20 once 5G is functional. Also, futuristic projects such as smart cities are fairly dependant on the strength of the telecom sector. But the recent ruling on AGR dues has led financial burden on incumbent operators which may impact such projects. As a result, the government has to put in measures to provide some relief to the operators so that they do not enter into fresh debts.”

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