A continuous shortfall in payment by Vodafone Idea could affect the Indian operations of Boston-based American Tower Corporation (ATC), the latter said in its annual report for 2022.

In India, ATC provides tower infrastructure solutions to telecom operators through its subsidiary, ATC Telecom Infrastructure.

Vodafone Idea is ATC’s largest customer in the country and constitutes 3.2% of its total revenue of $10.7 billion for the year ended December 31, 2022.

The reason for the delay in payments by Vodafone Idea can be attributed to weak cash flows and the absence of fundraising, experts said.

“Continued partial payments from VIL (Vodafone Idea) could have further negative effects on our fixed assets, intangible assets or goodwill, could result in additional impairments and could have a material adverse effect on our business, results of operations or financial condition,” ATC said in its annual report.

“VIL may not be able to meet its operating obligations, including making payments to us in the future,” it added.

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The telecom operator owes over Rs 3,000 crore to ATC, according to industry estimates. In February, Vodafone Idea had allotted equity convertible debt bonds worth Rs 1,600 crore to ATC Telecom Infrastructure. The amount of Rs 1,600 crore, if unpaid by Vodafone Idea in 18 months, would also give an option to ATC to convert the dues into equity at a price of Rs 10 per share.

In 2022, ATC revenues from the Asia-Pacific property segment fell 10% to $1.07 billion (around Rs 8,778 crore) due to revenue reserves of $52.5 million (Rs 431 crore) related to the shortfall by Vodafone Idea and a write-off of Vodafone Idea’s balances to the tune of $13.1 million (Rs 108 crore).

In addition, the company has also witnessed a decrease of $21.3 million (Rs 174 crore) in pass-through revenue, primarily due to revenue reserves of $42.0 million (Rs 344 crore) related to Vodafone Idea’s shortfall.

Pass-through revenue means operating revenue for ATC, which is derived from costs. Simply put, telecom companies reimburse energy or fuel charges to tower companies.

“As a result of the challenging business environment in India, we are exploring various strategic alternatives aimed at potentially reducing our exposure there, including the sale of an equity interest in our India operations to one or more private investors,” ATC said.

In late 2022, Vodafone Idea had said it would resume payments in full to ATC under its contractual obligations from January 1, 2023. However, in early 2023, the telco communicated that it would not be able to resume payments in full of its contractual obligations, and that it would instead continue to make partial payments, ATC said.

Owing to uncertainty of payments from Vodafone Idea, ATC has taken an impairment of $97 million (Rs 796 crore) on its tower and network location intangible assets in India. The company has also impaired the tenant-related intangible assets for Vodafone Idea to the tune of $411.6 million (Rs 3,376 crore).

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Impairment is a permanent reduction in the value of a company asset, which is undertaken if anticipated future cash flows are not recoverable.

In India, ATC owns 76,826 towers. “We expect to periodically evaluate the carrying value of our Indian assets, which may result in the realisation of additional impairment expense or other similar charges,” ATC said.