SC’s AGR ruling latest blow to the company; if it bows out, the telecom space will be left a duopoly
Supreme Court’s decision to disallow any re-calculations on AGR dues of telcos to the government is a further setback for Vodafone-Idea, after the apex court’s verdict in September 2020, that telcos must pay their AGR dues and do it over just ten years. It is inconceivable—or perhaps not—that the AGR issue was allowed to drag on for such a long time, despite the potential dangers of such a delay; the government needed to have stepped in with a solution rather than let the matter move back and forth between various courts. Indeed, at the very least, it could have heeded Vodafone’s plea for a year’s moratorium for one instalment. This would have meant a small inconvenience in return for the billions of dollars that Vodafone Inc has invested in India over the years and the lakhs of job opportunities created by the business.
The clear winner from last Friday’s ruling is Reliance Jio since it now needs to contend with one much-weakened competitor. Bharti Airtel’s prospects also improve, even if it needs to pay its share of AGR dues, because the telecom space appears to be turning into a duopoly. It is surprising Vodafone Inc has chosen to remain in business in India all these years, and to make additional investments, despite the several blows dealt to, starting with the retrospective amendment in 2012. Mending Voda-Idea’s tattered balance-sheet post eleven consecutive quarters of losses and a debt of some Rs 1.8 lakh crore will be difficult without large doses of new capital from the shareholders. Analysts wonder whether the telco can ever generate the cash to be able to pay up the AGR dues of Rs 50,400 crore; ebitda in FY21 was just short of Rs 17,000 crore, the loss a staggering Rs 2.4 lakh crore. Unless the ARPU increases three-fold from levels of Rs 107 in March, and the subscriber base starts to grow, that would be difficult.
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Many would argue, Vodafone Inc has only itself to blame for the mess it is in; it failed to read the competition, the rapid change in technology and, crucially, the regulatory environment. Its biggest failing probably was to expect regulation would ensure a level-playing field and there would be no flip-flops. These columns had observed—in March 2020—that not only did Trai not believe RJio’s pricing was predatory despite evidence to the contrary, its actions, including a penalty for call-drops, hurt other telcos. Even though Trai later came up with a technical paper explaining why the call-drops were not the fault of the telcos, it did not drop the recommendation of a penalty.
Bharti Airtel has proved to be much smarter; while it was always a strong player, it was quick to upgrade technology. Both Bharti and Voda-Idea have been asking for a floor-tariff, but now Bharti has gone ahead and raised tariffs, probably realising Trai will not allow for one. Trai is understood to have dropped the proposal to put in place floor-prices for data and voice tariffs late last year, in the belief the health of telecom operators had improved post the December 2019 tariff hikes. It is possible the regulator is of the view that consumers will be better off with limited competition and that the solvency of one player is not relevant.
The government also does not seem unduly worried that Voda-Idea may shut shop and that this could result in huge job losses; it may not have been able to influence the court’s decision, but it could certainly have done more—at least in the interests of the telecom sector—to try and get Voda-Idea’s business back in shape.