Telcos' AGR dues to outweigh two-year breather for spectrum payment

The Cabinet decision to give a two-year moratorium to telecom companies for spectrum payment is too little, too late, senior executives said a day after the government announcement. The relief, pegged at more than Rs 42,000 crore for three private telcos, may not help the industry as the government has made it clear that operators need to pay Rs 1.47 trillion dues of adjusted gross revenue (AGR) along with spectrum usage charges (SUC) within 90 days as the Supreme Court (SC) has directed.       

Incumbent telcos Bharti Airtel and Vodafone Idea have said they would go for a review petition of the top court’s order, but they have limited time to move court. A review petition has to be filed within 30 days of the SC order, which came on October 25. 

While Airtel, Vodafone Idea, and Reliance Jio would get a relief of Rs 42,888 crore in FY21 and FY22 as a result of the moratorium, they have to fork out AGR dues of Rs 49,995 crore in FY20, calculations show. Along with the spectrum usage charges (SUC), the payout comes to Rs 91,000 crore this financial year. 

Since Jio’s AGR dues are negligible, Airtel and Vodafone Idea will take a major hit even after the two-year spectrum payment breather announced by the government.  

Goldman Sachs in its latest report has pointed out that the moratorium will help Vodafone Idea be close to a free cash flow break-even in FY21 and FY22, but that excludes the AGR payout. Even without the AGR burden, the firm could become free cash flow negative in FY23. It also opines that as interest will accrue for the moratorium period, there won’t be any impact on the value of the stock. Nor will it help in improving its leverage, which is already at 20x of Ebitda. 

The additional cash flow from the two-year moratorium is also negated by the fact that the telecom firms have to fork out much more every year on spectrum from FY23 onwards. 

Interest, as specified during the time of auction, will be charged as the time line for payment has not been extended. 

According to estimates made by the Cellular Operators Association of India (COAI), Vodafone Idea has to pay an additional Rs 4,023 crore every year from FY23 to FY30. 

At the end of 2034, the last year for deferred spectrum payment, it would need to pay an additional Rs 18,000 crore from what it would have paid before the Cabinet decision. For Airtel, the burden will be an additional Rs 1,871 crore every year in the same period. Airtel will need to pay an additional Rs 8,600 crore at the end of the deferred payment period. 

The only way that telcos can get a relief will be through a staggered payment option for the AGR dues. This, along with the expected over 20 per cent increase in tariffs, could improve their balance sheets, analysts pointed out. The tariff hike announced by three private telcos this week would possibly generate over Rs 27,000 crore of additional revenues based on FY19 financials. Any reduction in licence fee for telcos could come as a bonus, they said.

If COAI’s demand for a 10-year staggered payment with interest is accepted by the SC, the annual payout by Airtel for AGR dues (not SUC) would be Rs 3,453 crore annually and Rs 4,509 crore for Vodafone Idea, estimates say. But if the deferred payment for AGR dues is only for three years, it would come to Rs 12,963 per annum for Airtel and Rs 16,925 crore per annum for Vodafone Idea. The cash flow from the relief in spectrum payment could partly help the operators in paying the AGR dues. Airtel will get a relief of Rs 11,500 crore and Vodafone Idea Rs 24,500 crore from the Cabinet decision. 

There are other ways that the government can help, industry stakeholders have suggested. Over 30 per cent of telecom revenues go to the Centre, of which 18 per cent is GST, while the rest includes a licence fee of 8 per cent, and SUC of 3-6 per cent. Though the Centre has been toying with the idea of reduction in licence fee by 3 per cent (that would add Rs 4,100 crore to their bottomline), any change would require the Department of Telecommunications to refer to the Telecom Regulatory Authority of India. Subsequently, the Trai  recommendations have to go through the Digital Communications Commission and possibly the Cabinet before they are implemented. As of now, telcos believe the process has not even begun. 

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