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India's top court deals yet another blow to its telcos

India's top court this week dealt another blow to the country's service providers by asking them not to carry out any self-assessment of what they owe in licensing fees and other charges under the controversial Adjusted Gross Revenue (AGR) ruling. (See India court decision a massive blow for telcos.)

"Exercise of self-assessment of AGR dues by telecom companies cannot be permitted even in wildest dreams," observed the bench during the hearing. "Our judgement on AGR dues is full and final, it should be followed in letter and spirit."

The decision follows weeks of turmoil in India after the government clashed with telcos over AGR charges, which are calculated as a percentage of revenues. Authorities say non-telecom revenues should be included in those calculations, landing Bharti Airtel and Vodafone Idea, two of the big three players, with a huge bill in unpaid fees dating back years. With India's court system now taking an even tougher stance than the government, Vodafone Idea has warned it may be driven out of India without some form of relief.

Table 1: Indian AGR fees ($M)

Bharti Airtel Vodafone Idea Tata Teleservices Reliance Jio
DoT's calculation $5,867M $7,762M $2,238M $26M
Company's calculation $1,733M $2,869M $292M $26M
Amount paid so far $2,400M (including ad-hoc payment) $915M $559M (including ad-hoc payment) $26M
Source: India's government, companies.

As things stand, there is a difference of about 823 billion Indian rupees ($10.9 billion) between the AGR dues calculation of the Department of Telecommunications (DoT) and the figures provided by three telcos – Bharti Airtel, Vodafone Idea and Tata Teleservices. The Supreme Court has lashed out at the telcos for indulging in self-assessment.

Jio is the only telco that decided not to self-assess the AGR dues and it has now paid the entire amount. Because it started operations as recently as September 2016, it owed far less than its main rivals.

Bharti Airtel has already made a payment of INR130.04 billion ($1.73 billion) in two installments. It has also deposited INR50 billion ($660 million) as an "ad-hoc" payment to cover differences arising from the reconciliation exercise by the DoT. According to authorities, it owes about INR439.8 billion ($5.87 billion) and has yet to pay the remaining amount.

Tata Teleservices, meanwhile, has made a payment of INR21.97 million ($293 million) in AGR dues based on its calculations, setting aside another INR20 billion ($266 million) to cover differences with the DoT's figures. The company needs to make a total payment of INR167.98 billion ($2.23 billion), say authorities, and so it has to pay the remaining INR126.01 million ($1.67 billion).

Vodafone Idea is in the worst position. It has made a payment of INR68.54 billion ($914.53 million) and reckons its total dues are INR215.33 billion ($2.8 billion). But the DoT's calculation is that Vodafone Idea owes INR582.54 billion ($7.77 billion), more than double the company's calculation.

Of all service providers, Vodafone Idea is the most affected by the Supreme Court observations. It has repeatedly argued it will be left with no option but to quit India if the government does not provide relief. A staggered payment term of 20 years would have made it possible for the company to continue operating in the Indian market. (See Vodafone's never-ending Indian agony and Can Vodafone Idea survive in India?)


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But India's top court is clearly reluctant to take up the petition to extend payment terms to 20 years. "The time frame of 20 years is unreasonable. The telecom companies have to clear all dues mentioned in the judgement," the bench observed.

Vodafone Idea's exit from the Indian market would push the Indian telecom sector toward a duopoly controlled by Bharti Airtel and Reliance Jio. Some have even argued the market is destined for a Reliance Jio monopoly unless the government intervenes.

There is no denying that Reliance Jio's entry has had a positive impact on the sector, forcing other telcos to prioritize the launch of 4G services and make mobile broadband accessible to all segments of society. Even so, as a firm backed by Reliance Industries, India's wealthiest conglomerate, it comes with very deep pockets and resources that have allowed it to influence the market (and government policies) in its favor. The Indian government needs to step in now to make sure consumers and the industry's interests are protected. (See India needs U-turn to prevent Jio monopoly.)

From an average of 12 players in every circle (service area) about five years ago, the sector would be down to just two private-sector companies after Vodafone Idea's exit. Falling prices largely explain why the communications sector has had such a transforming effect on India. But without such a competitive market, prices would undoubtedly have remained a lot higher. Observers will wonder how the market evolves with just two players.

— Gagandeep Kaur, contributing editor, special to Light Reading

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