It never fixed AGR issue, didn’t clarify on spectrum-resale & has huge dues thanks to the policy of jacking up spectrum prices.
While expensive lawyers try to convince the Supreme Court (SC) to allow their clients to go ahead with the liquidation of companies in the insolvency courts, or to reduce the amount of AGR dues they have to pay—RJio wants to pay just a fraction of RCom’s dues—a question that keeps coming up is that of the government’s dues of Rs 168,000 crore (see graphic).
Given the government will get little from firms that are already in the insolvency courts—Aircel owes Rs 12,389 crore and RCom Rs 25,199 crore—SC has asked the government to explain its plan to recover the dues. After all, SC said, if firms could so easily escape paying the dues, others may also end up in the insolvency courts; Vodafone Idea is perilously close to ending up bankrupt. Should this happen, not only will the government lose its Rs 58,000 crore of AGR dues but it will also lose the Rs 158,000 crore that it is owed on account of deferred spectrum dues—dues on the spectrum the telco bought in the past.
Not surprisingly, while the government is arguing that the telcos cannot be allowed to sell their spectrum, the telcos and banks argue that they should be allowed to since they paid for it; the government’s view is that spectrum is a national resource, and telcos were only given the right to use it. When they can’t use it, it should revert to the government which can then use this to get back the money it is owed. How much it can, of course, is another matter since telcos bought spectrum when they were in better financial health, when there were more players, etc; it is, for instance, unlikely the government will be able to get anywhere near Rs 158,000 crore by reselling the Vodafone Idea spectrum.
While SC may finally come up with a ruling on whether the banks/telcos are free to sell the spectrum, not allowing this will mean banks/telcos will recover precious little from the insolvency process; this, in turn, will mean that both bankers and other investors will be wary of investing in telecom in the future. It will also cast a shadow on the entire insolvency process as similar logic can be applied to other sectors as well.
At the heart of the problem, as this column has pointed out several times, is colossal mismanagement by the department of telecommunications (DoT) over the years. All the government ever thought of was money, it never ever worried about consumer interest, and wherever it could postpone a decision, it did.
Not taking a call on what constituted telecom ‘revenue’ for several years is, of course, what is responsible for the current AGR mess and the fact that, after having invested $52-bn, Vodafone Idea is so close to shutting down.
The issue of whether telcos—and the banks that finance them—can sell the spectrum they have paid tens of thousands of crore rupees for is an old one, but it has never been resolved. It came up again, in a more forceful manner, last year, when the NCLT allowed Aircel to be sold. While DoT objected to this, NCLT ruled against it. DoT appealed against this so late, the NCLAT rejected its appeal on the grounds of being time-barred and even the SC appeal on this was filed late. While this makes it clear DoT can’t even be trusted to defend its interests in the way it perceives them, what is amazing is that the DoT never found a permanent solution for such an issue with such large ramifications.
But why, the question is, did such massive dues even pile up? Ideally, DoT should never have sold spectrum to telcos on a deferred-payment basis as this meant its dues were uncertain, linked to the fate of the telcos. It did so because, since it had virtually bankrupted the industry by artificially driving up spectrum prices so much—while simultaneously charging them high annual spectrum/license fees—this was the only way to ensure the spectrum auctions didn’t fail. Had the auctions failed, spectrum prices would have collapsed, and the industry would have recovered. But a government solely focused on revenues couldn’t have this; a deferred payment schedule over 20 years allowed the industry to participate in the auctions.
Even this, by the way, wasn’t enough to get all the spectrum sold. And, 38% of all spectrum put on auction since 2010 has remained unsold; the figure was as high as 67% in 2012, 100% in 2015, 59% in 2016, and no auctions took place since. At a time when consumers are facing call drops and poor internet speeds, the DoT’s stance was inexplicable since it is clear consumer interest lay in getting more spectrum sold as this was the only way to improve the quality of services on offer.
Indeed, delaying insolvency resolution is also against consumer interest, apart from hurting banks and other investors. If an RCom is financially unviable, it is obvious its customers will be hit when it stops services; customers ported out, but this added to the pressure on other telcos and worsened the quality of their services. But, and this is why successful insolvency is critical, if RCom is able to lower its debt burden and to write off all equity, the RCom that emerges can once again start offering services to its subscribers. But with the DoT continuing to insist that spectrum can’t be sold, getting RCom back on track isn’t possible, apart from the fact that bankers and other investors will worry about lending/investing in a firm where the bulk of its capex is being spent on something—spectrum—that it can’t even liquidate in times of trouble; if RCom returns the spectrum, DoT will get back some more to add to its vast kitty of the unsold spectrum. And yet, despite this massive mismanagement for so many years, the government continues to be surprised that people aren’t investing anywhere near what the country needs.