Telcos Might Get Payment Breather in AGR Case in India

India's government seems prepared to listen to the country's ailing service providers, but the future remains bleak for one of them.

Gagandeep Kaur, Contributing Editor

January 22, 2020

3 Min Read
Telcos Might Get Payment Breather in AGR Case in India

Bharti Airtel, Tata Teleservices and Vodafone Idea, three prominent Indian service providers, have this week approached the country's Supreme Court to demand modifications to the conditions and schedules for payment of statutory dues -- related to the recent Adjusted Gross Revenue (AGR) ruling -- to the Department of Telecommunications (DoT).

The court has decided to hear the pleas in the coming week. That should provide some relief to the operators, which were due to make their first payments on January 23. While the details of their demands remain unclear, the Cellular Operators Association of India (COAI), an industry group, had previously asked if payments could be made over a 14-year period.

This move comes after the Supreme Court rejected the review petition of the service providers regarding the AGR ruling last year. Under that ruling, the service providers must pay around 920 billion Indian rupees ($13.9 billion) in license fees, penalties and interest payments. The ruling stipulated that non-telecom-related activities should be included in the definition of AGR under telecom license conditions, massively inflating the amount owed. (See India court decision a massive blow for telcos.)

As a result of this ruling, Bharti Airtel needs to make a payment of around $3 billion, while Vodafone owes $4 billion, Tata Teleservices $1.9 billion and Reliance Jio -- which started operations only three years ago -- roughly $1.8 billion. Bharti Airtel says it has already raised funds for the $3 billion it owes.

Now operators are demanding changes to payment terms and conditions. Vodafone Idea, particularly, is in a tight financial spot following the AGR ruling: It stands to lose its entire cash balance and has said it cannot raise funding from banks to cover payments. Unless it receives some relief from the government, it will be forced to shutter its business, it insists. Authorities will be keen to avoid any such development, which could seriously tarnish India's reputation among overseas investors.

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The disappearance of Vodafone Idea would also turn India into an effective duopoly featuring Bharti Airtel and Reliance Jio as the two major players. Apart from these companies, India's telecom sector would also have the state-owned BSNL and MTNL, which are set to merge operations. But this may struggle to mount a competitive challenge to the private-sector players.

In the short term, Bharti Airtel and Reliance Jio may benefit from Vodafone Idea's exit. Even if the government steps in to support Vodafone Idea, the company seems bound to lose market share as customers shift to better-run networks. Given its current financial predicament, upgrading to new technologies will be tough for the operator, prompting subscribers to look elsewhere. One possibility is that other service providers seek to negotiate a takeover of Vodafone Idea's assets, leading to yet more consolidation in the Indian market.

In any of these scenarios, Vodafone Idea is staring at a challenging future, and will be fighting for its very survival.

— Gagandeep Kaur, contributing editor, special to Light Reading

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About the Author(s)

Gagandeep Kaur

Contributing Editor

With more than a decade of experience, Gagandeep Kaur Sodhi has worked for the most prominent Indian communications industry publications including Dataquest, Business Standard, The Times of India, and Voice&Data, as well as for Light Reading. Delhi-based Kaur, who has knowledge of and covers a broad range of telecom industry developments, regularly interacts with the senior management of companies in India's telecom sector and has been directly responsible for delegate and speaker acquisition for prominent events such as Mobile Broadband Summit, 4G World India, and Next Generation Packet Transport Network.

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