Last week, in a major blow to the incumbent telecom players, Bharti Airtel and Vodafone-Idea, the Supreme Court ruled that the existing definition of AGR will prevail. The verdict allows the government to recover Rs 92,000 crore of AGR from the already financially stressed telecom industry that includes many operators who’ve already gone out of business or are under insolvency proceedings. The payout by telcos could rise to an estimated Rs 1.33 trillion once spectrum usage charges (SUC) linked to AGR are taken into account. CLICK TO READ FULL REPORT
Reacting to the news, Bharti Airtel on the day of judgement had said, “TSPs (telecom service providers) have invested billions of dollars in developing the telecom sector and providing world-class services to consumers. This decision has come at a time when the sector is facing severe financial stress and may further weaken the viability of the sector as a whole.” Airtel needs to pay an AGR of Rs 21,682.1 crore (without SUC)."
The definition of AGR has been a long-standing issue between the telcos and the Department of Telecom (DoT). Telcos pay licence fee and spectrum charges in the form of revenue share to the government. Simply put, the revenue amount, which is used to calculate this revenue share, is known as AGR. While DoT thinks that income earned from sources like bank deposits be included as AGR, telcos feel income from core telecom services should only be considered. READ MORE
Most analysts said the verdict will have a devastating impact on the telcos.
"The SC verdict is the body blow to the telecom companies as they are already highly leveraged and their business models will be fatally impaired. Secondly, it is not only the telcos that will have to bear the brunt but also the lenders to the telcom sector. So, the fragility of the financial system, which is already under seige, will get further impacted by this move if their business models come under question," said Ajay Bodke, CEO & Chief Portfolio Manager (PMS) at Prabhudas Lilladher.
“The verdict will have a devastating impact on the telcos. Vodafone Idea will be worst hit with over Rs 28,000 crore impact,” said Naveen Kulkarni, head of research at Reliance Securities.