Not much to really help beleaguered telcos or to rescue Vodafone Idea which will remain, at best, a weak player.
The government affidavit in the Supreme Court in the AGR case tries, correctly, to impress upon the court the extent of the impact its judgment on AGR dues will have. So, it talks of “certain inevitable consequences which may not be in anyone’s interest”, of the “crores of consumers throughout the country” that the telcos are serving and warns that “any adverse impact on the functioning of the telecom service providers would not only have an adverse impact on the overall economy of the nation but would also seriously harm the interest of the consumers across the country”.
And just in case the judges believe all 304 million consumers of Vodafone Idea—that is perilously close to shutting—can easily port out to an RJio or to an Airtel, the affidavit points out “Mobile Number Portability has capacity limitations: this may lead to delays … and consequent disruption of services for customers”. It goes on to add that porting, should it happen, will mean both RJio and Airtel will need additional spectrum to service the new customers and “spectrum is acquired through auction”; in other words, that’s going to take some time. A letter from the Indian Banks’ Association (IBA) is also annexed, detailing the losses to the banks.
It is not too clear, however, whether the document will really stun the court since it doesn’t quite highlight the extent of the calamity. Stating the loss to the government, for instance, may have made a bigger impact. While Vodafone Plc invested around $30 billion in its India operations—Idea invested around $21 billion—and will lose all of this now, the government stands to lose Rs 58,254 crore in AGR dues, Rs 5,700 crore in one-time-spectrum-charge (OTSC) dues, and another Rs 157,750 crore of deferred payments for spectrum that Vodafone Idea bought in the past. In addition, banks are owed around Rs 49,000 crore, and it is not clear how much of this is secured by assets, or how much banks will get once the company goes to the insolvency courts. Indeed, the government should have told SC that, since banks are recovering just 40-45% of their dues in the insolvency courts, the government forgoing a large part of the dues was in its own interest.
And while it is possible the government may—the courts will decide since the banks are contesting this—get its spectrum back if Vodafone Idea goes bankrupt, what matters is whether it can get more from a fresh sale than what the telco owes it. That’s highly doubtful since, with the glory days of telecom over, the government’s revenues fell from Rs 70,241 crore in FY17 to Rs 39,345 crore in FY19; and there were no auctions in 2017, 2018, or 2019 since the telcos were too cash-strapped. And, with just two players left in the industry, the competitive intensity for auctions will also be much lower in the future. Not giving the SC these really huge numbers was a bad idea.
Indeed, even the IBA letter has been dealt with shoddily by just relegating it to an annexure without mentioning the main points upfront; that while banks already have Rs 12 lakh crore of NPAs, their exposure to telcos—and much of this can go bad—is Rs 1.3 lakh crore; Rs 67,811 crore of this is SBI’s which already has telecom NPAs of Rs 12,165 crore. In addition, banks have extended financial guarantees of Rs 34,000 crore; the IBA letter doesn’t say if banks have adequate collateral against this.
If the defence is weak, it is not surprising that the rescue package is so half-hearted. Since it is clear the SC ruling was the first time a final decision was taken on what constituted AGR—in 2006, 2007, 2011, and 2015, various courts set aside the AGR orders given by DoT—the government should have insisted that telcos only pay the principal dues, not the penalty and interest; this is typically a fourth of what the DoT says the AGR dues are. And then there is the issue of whether the DoT has calculated the dues correctly. The latest affidavit doesn’t ask for that.
Instead, it says the telcos should get 20 years to pay their AGR dues. That lessens the immediate pain, as does the two-year moratorium given recently on paying the deferred spectrum dues. But since interest of 8% has to be paid on the AGR dues, this doesn’t really help. Indeed, even if you take Vodafone Idea’s self-assessed AGR dues of Rs 21,533 crore—instead of the DoT’s Rs 58,254 crore—the telco’s AGR and deferred-spectrum-payment dues rise from Rs 2,627 crore in 2021 to a whopping Rs 14,728 crore in 2023 and stay at roughly that level till 2034. The maths for a Rs 58,254 crore AGR due is much worse.
How the telco is going to raise this money is anyone’s guess, but its capex-spend is already suffering badly (see graphic). If the government was really serious about saving telcos, it would have by now completely scrapped the 13% license fee/spectrum charge (LF/SC) which would give each telco a relief of around Rs 5,000 crore a year. Not only is this totally justified since there is no reason to charge LF/SC when the spectrum is sold at market prices—LF/SC were charged when spectrum was given virtually free—it is also the only way to ensure telcos like Vodafone Idea can borrow more to be able to repay their dues as well as invest enough to remain competitive.