A way out for India’s jammed telecom sector

In May, the Supreme Court of India rejected yet another petition by the telecom operators seeking a waiver of interest and penalty of about Rs 1.5 lakh-crore adjusted gross revenue (AGR) dues.

On July 2, telecom minister Jyotiraditya Scindia rebuffed the most troubled operator Vi, making its survival quite uncertain: “There cannot be further equity conversion by the government to more than 49%.”

The government also rejected Airtel’s application to convert its AGR dues into equity, making the AGR issue drag on.

BSNL continues to fade away; it lost 1.74 million subscribers in 2024-2025 despite the government providing free spectrum and BSNL rolling out 4G services.

The telecom sector in India is jammed and heading towards a duopoly. Why is there this policy stasis in the telecom sector? Is there a solution?

A mess created by government

The AGR mess is rooted in A B Vajpayee government’s decision to broaden the definition of the AGR to include non-telecom revenue, in contracts signed for converting the fixed spectrum fee regime into a revenue sharing regime.

This problem was compounded by the Manmohan Singh government suing telecom operators to pay the AGR on non-telecom revenue, and, thus, exaggerating the dues.

The SC unwittingly walked into it by ordering the telecom companies to pay not only the AGR on non-telecom revenues but also on miscalculations, thus imposing heavy interest and penalties. The SC’s 2019 decision sounded the death knell of Airtel and Vi, even in an otherwise desperate scenario when their revenues had fallen drastically after Jio’s entry.

When India’s telecom sector was on the verge of collapse, the government mustered courage in October 2021 and abolished the AGR on future non-telecom revenues. While two operators — Jio and Airtel — have emerged strongly, riding on robust data revenues, Vi and BSNL continue to remain on the ventilator.

Since neither the SC nor the government would grant any AGR relief to the telecom operators, India needs to find a different solution.

An easier solution

Airtel will have to pay AGR dues of Rs 41,000 crore (to the extent remaining unpaid). It is not necessary that it is paid in cash only. Airtel can pay it in the form of equity shares (at the current market price) by converting its AGR liabilities into equity. The government can sell off the shares immediately and book the proceeds as receipt of AGR dues.

Airtel’s management can easily structure this transaction into a simultaneous deal by arranging to buy these shares by market participants or by their own vehicles.

Complex but doable

Promoter shareholding in Vi is currently only about 25%; at about 49%, the government is the largest shareholder. As of March 31, Vi has negative equity of Rs 70,320 crore, which makes the earlier conversion of its AGR dues into equity effectively written off.

Vi has non-current liabilities of Rs 2.1 lakh-crore and current liabilities of Rs 55,613 crore, including about Rs 80,000 crore of AGR dues.

It is unlikely that the promoters (Aditya Birla Group and Vodafone Group) will bring any more capital into Vi. Their current control of management is only a façade.

There is no option but to end the misery and pretence of promoters owning and running Vi. Let them give up their equity at zero consideration and, in addition, pay off a portion of the AGR liability (say Rs 10,000 crore).

This will formally make Vi a government company.

Merge Vi and BSNL (and MTNL)

The three troubled telecom entities — Vi and BSNL (and MTNL) — have very high debt, and are defaulting on their obligations.

Vi’s liabilities will have to be resolved in a bankruptcy-type situation. All creditors (including the government) will have to take a haircut of 90+% and convert the rest into equity at face value. BSNL’s and MTNL’s liabilities can be transferred to a special purpose vehicle (SPV), as was done in the case of Air India.

All three are technologically backwards, with the majority of subscribers on 2G and 3G technology. Moreover, all three, but predominantly BSNL and MTNL, have too many employees and operate in a non-commercial environment. Excess employees would have to be ‘voluntarily’ retired.

The debt and workforce clean-up would have to be undertaken inside existing companies. Their assets would also have to be revalued at current replacement prices.

Thereafter, the three entities can be merged with a clean slate. Its management would have to be handed over to a body of professionals to build it as a tech-led company. This will ensure that India has three strong telecom players.

Likely to happen?

The telecom sector has seen extraordinary resolutions. Vajpayee converted the failed fixed licence fee model into a revenue-sharing model, reviving the fortune of India’s telecom sector.

The Narendra Modi government displayed flashes of bold decision-making in 2021 when it abolished future AGR for incumbent operators. Currently, however, the government is in a state of voluble stasis — talks big but reforms are nil. The solution is eminently doable. It is, however, unlikely to materialise.

(Subhash Chandra Garg is former Finance & Economic Affairs Secretary, and author of ‘The Ten Trillion Dream Dented’, ‘Commentary on Budget 2025-2026’, and ‘We Also Make Policy’.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.