Turning down the telecom companies’ (telcos’) plea urging for a modification in the payment dues linked to adjusted gross revenues (AGR), the Supreme Court on Friday, February 14, came down heavily on both the government and telcos for failing to comply with its October 2019 order.
The development has come as a blow to Bharti Airtel and Vodafone Idea, which are now required to pay over Rs 90,000 crore licence fee dues to the government by March 17. A three-judge bench headed by Arun Mishra issued show cause notices to the telecom companies and a Department of Telecommunications official, asking why contempt proceedings should not be initiated against them.
Telcos are mandated to pay 8% of AGR as licence fee and another 3% as spectrum usage charges (SUC) for operating in the country. However, since 2003, the telcos and the government had differences in the manner in which AGR is calculated. Ending the longstanding spat, the apex court in October last year had backed the government’s definition of AGR and directed the companies to pay the licence fee dues by recalculating AGR since 2003 alongwith interest upon it that amounted to nearly Rs 1.47 lakh crore.
Also read: In Big Blow to Telecom Majors, SC Rejects Review Plea on Rs 1.47 Lakh Crore Dues
While the court asked 15 telecom operators to pay this amount, only Airtel, Vodafone and Reliance Jio were currently operating in the country which owe Rs 35,500 crore, Rs 54,000 crore and Rs 195 crore, respectively. In January, Jio paid its dues to the telecom department. That is, government will not receive the total AGR dues as many companies are not existing.
Companies have been paying license fees by calculating AGR on just revenue accrued from core telecom services, while the government definition of AGR includes both revenue from core services and non-core services such as investments (dividends, interest, etc.), real estate rent and sale, and other miscellaneous items.
While Airtel has claimed to have cleared the dues, Vodafone Idea is left with only two choices, either equity infusion or bankruptcy.
“Vodafone Idea’s survival is unlikely, unless there is fresh equity infusion from its promoters, as the Supreme Court’s strongly worded reaction to the modified plea filed by incumbent telcos means chances of any relief (from the government) in the form of a deferred payment of AGR dues is remote now,” said Nitin Soni, director of ratings firm Fitch.
On Thursday, Vodafone Idea reported a loss of Rs 6,439 crore loss during December quarter and a loss of Rs 50,921 crore during September quarter of 2019-20.
Whereas, Airtel posted a loss of Rs 1,035 crore during December quarter and loss of Rs 23,045 crore during September quarter.
These latest developments have also sent shockwaves across India’s banks which have a substantial exposure towards the telecom firms.
State Bank of India is estimated to have an exposure of Rs 37,330 crore to Airtel and Vodafone Idea by the end of September 2019. Similarly, HDFC Bank (Rs 24,515 crore), Axis Bank (Rs 17,135 crore), Bank of Baroda (Rs 11,471crore) and Punjab National Bank (Rs 7,318 crore).
Also read: SC Allows Centre to Recover Rs 92,000 Cr From Telecom Companies