AGR: Sector to be nudged towards duopoly without tariff hike

Our Bureau Mumbai | Updated on September 02, 2020 Published on September 02, 2020

The Supreme Court’s order permitting telecom companies to stagger their Adjusted Gross Revenue (AGR) payments over a 10-year period would lead to tariff hike, without which the sector would move towards duopoly, analysts reports said.

“In our view, 10-years’ payment term, without meaningful tariff hike, will nudge the sector towards duopoly. We do expect telecom operators to raise tariff considering mounting regulatory costs,” Edelweiss Securities said in a report.

“According to our estimate, Idea (Vodafone Idea Ltd) will have to pay Rs 7,300 crore per annum from FY23, which is on top of Rs 15,000 crore annual payment towards spectrum demands. Considering its Rs 18,600 crore FY21E EBITDA, this is a tall task, which the company will find it difficult to manage in the absence of significant tariff hike or equity infusion,” it said.

The telecom companies have an option to file a review or curative petition, which they could explore considering the importance of the judgement, it added.

In its order on Tuesday, the apex court had asked telcos to pay 10 per cent of the AGR dues upfront and the remaining 90 per cent over 10 years starting from financial year 2023.

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The ruling has made things more difficult for VIL as it has to pay the fine over shorter duration of 10 years and may need major tariff hike to sustain its business, BofA Securities said in its report.

“Our analysis implies that VIL needs to have Rs 200-240 ARPU over next 18 months (from current levels of Rs 124). We expect next round of tariff hike to be in next 1-3 months,” it said.

The industry was expecting a ruling that would permit a staggered payment of dues over the next 12-15 years.

“The SC's ruling of no transfer of AGR dues in case of spectrum sharing and partial trading would mean that RJio shall not be liable for any spectrum dues of Reliance Communications (RCom). However, Airtel could be liable for Videocon's AGR dues of Rs 1,400 crore given transfer of 'entire' spectrum, but we would seek clarity on sharing of Aircel's dues,” Credit Suisse said in a report.

“We believe that Bharti Airtel remains comfortably placed to meet its AGR dues given leverage at 3.5 times along with growing EBITDA trajectory. However, we remain cautious on VIL as it would need significant equity infusion by end FY22E along with meaningful operational improvement,” it added.

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Published on September 02, 2020
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