Short of time and funds, Voda Idea can't celebrate SC's AGR dues order

The Supreme Court’s decision to give telecom companies 10 years to pay back their adjusted gross revenue (AGR) dues to the government has serious implications for Vodafone Idea Ltd (VIL) and raises questions if the telecom industry would become a duopoly of Reliance Jio and Bharti Airtel.

VIL had asked for a 20-year-payment schedule but changed its stand before the court, saying it would be fine with 15 years. The company made it clear that its plan to raise funds would depend the court decision.

The court, in much-needed relief to Jio and Airtel, asked the National Company Law Tribunal to decide whether their use of spectrum that once belonged to bankrupt companies should be part of a corporate insolvency resolution process (CIRP).

Analysts say the court’s order means that the Jio doesn’t have to pay for the AGR dues owed by Reliance Communications and Bharti Airtel for Aircel and Videocon, because the two companies had got into trading and sharing agreements with the companies under the Insolvency and Bankruptcy Code (IBC) to use their spectrum.

VIL has AGR dues of Rs 58,200 crore, and has paid Rs 7,900 crore until now. The court’s order to pay the remaining amount in 10 years means the company will have to fork out Rs 30,000 crore annually: that amount includes AGR dues of Rs 7,500 crore annually, deferred payments for spectrum it bought earlier (it had a two-year moratorium from the government), non-spectrum interest payouts and its routine capital expenditure, analysts estimate.

The company will have to increase its average revenue per user (ARPU)--the total revenue divided by the number of subscribers-- by over 87 per cent (it was Rs 124 in the June quarter) and its earnings 4.9 times to pay this Rs 30,000 crore bill.

That is a tall order despite VIL aiming for cost savings of more than Rs 4,000 crore in eighteen months. The burden in a 15-year schedule would have been much lower, as the company would have had to fork out only Rs 5,900 crore annually. 

VIL lost 11 million subscribers in the June quarter, so it can’t raise tariffs. The company’s plan to sell its equity in Indus Towers is stuck and selling optic fibres is the only monetisisation option let for shareholders. 

The court’s decision to let the NCLT decide whether spectrum should be part of the CIRP gives Jio relief of over Rs 25,000 crore, as there was fear that the Mukesh Ambani group company might have had to pay the AGR dues of Reliance Communications with which it had a sharing as well as a trading agreement for spectrum. Jio has paid off its nominal dues for AGR. Airtel, on the other hand, would have to pay an additional Rs 13,375 crore because it had trading agreements for spectrum with both Aircel and Videocon. The additional amount would depend on what percentage of spectrum Airtel used.

Airtel has already partly paid 17,700 crore crore for AGR dues of companies it traded with. But in case the new impost was added the total dues would have hit Rs 40,000 crore nearly, neutralising what the company had already paid.

The court’s decision leave a decision on a third issue to the NCLT: whether banks can use spectrum as collateral for giving loans and therefore as creditors have the right to transfer the spectrum to a new buyer through the Insolvency and Bankruptcy Code process. Without this arrangement, it would have been difficult for creditors to find a bidder to continue to run the company as a going concern.

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