AGR: Duopoly likely as telcos expect Rs 1.4 lakh cr hit

Fears of a duopoly in the Indian telecom market have increased after the management of three Indian telcos — Vodafone-Idea, Airtel and RCom — said that they expect a Rs 1.4-lakh crore hit from the recent judgement by the Supreme Court.

Analysts on the street expect Vodafone-Idea, the entity formed after the merger of Idea Cellular and Vodafone India, not to sustain the hit from the move.

“We consider the recent SC decision on AGR to be a big event for the Indian telco sector which could turn into a dominant two-player market between Airtel and Jio. As a pure-play telco with more exposure to high-end subs, we find risk-reward favourable for Airtel and have a high conviction on the name at current levels,” Bank of America-Merrill Lynch noted in a report.

Vodafone-Idea CEO Ravinder Takkar allayed any such fears stating that the government is committed to seeing three players in the Indian telecom market.

In its first official step towards realising additional adjusted gross revenue (AGR) dues after the apex court order, the DoT on Wednesday issued notices to all telcos, ISPs, virtual network operators and their associations to pay up and submit compliance documents within three months of the ruling, as mandated by the court.

Embattled Vodafone-Idea, which has seen sustained depletion of its investor wealth since the day it commenced its operations on August 31 last year, is expecting a hit of Rs 77,160 crore from the SC verdict. Of this amount, the company expects a hit of Rs 27,610 crore for licence fee, Rs 16,540 crore for spectrum use charges and Rs 33,010 crore in the form of the penalty and interest payment. The company has however provided for only 33% of the likely hit in its second-quarter results. The company provided for Rs 25,680 crore worth of hit in Q2.

The company has told analysts that it is banking on a favourable decision by the government on the issue for which it has been lobbying hard. “VIL’s wish-list includes moratorium of spectrum instalments, call for a reduction in licence fee, GST refund (Rs 7,000 crore for VIL), the extension of IUC regime, and an interest and penalty waiver on the AGR case. VIL has also detected some calculation errors in DoT’s claim,” an analyst present in Voda-Idea post-results call told DH.

On the other hand, Bharti Airtel is expecting a hit of Rs 34,060 crore from the move. Of this amount, Rs 3,207 crore due is for licence fee, Rs 2,957 crore for spectrum use charges and a whopping Rs 22,286 crore in the form of interest and penalties. The company, which had already made provisions worth Rs 5,810 crore in this regard earlier, has fully covered its losses now. However, according to sources, the company is weighing options of stake sale in its subsidiaries or fresh capital raise to offset the loss.

Also, as a result of provisioning for the hit, the three telcos, have suffered losses worth Rs 1.04 lakh crore for the period of three months ending September 30.

Reliance Communication, which has been battling for solvency, expects a Rs 28,314 crore hit from the new norms.