AGR verdict: Analysts say tariff hike imminent by telecom players

The verdict on telecom adjusted gross revenue (AGR) by the Supreme Court is likely to cause financial stress to both Bharti Airtel and Vodafone-Idea, according to analysts tracking the sector. Both the companies had sought for 15 years.

“Tata Teleservices had sought a much shorter period, so they are unlikely to be impacted adversely. What is surprising is that the Department of Telecommunications had sought 20 years for repayment of the AGR dues, whereas the SC has slashed that by half,” Akash Karmakar, Partner, Law Offices of Panag & Babu.

It is no longer a question of whether the affected telcos are willing to pay their dues, but whether they would be unable to do so within the truncated timeline, given their cash flows, he said.

The most stressed operator Vodafone-Idea has been saying in many public forums that if no relief comes from the government, the company has to shut shop. Airtel also has been suffering a lot due to steep competition from Reliance Jio.

“The financial health of telcos necessitates upward revision of tariffs and rationalisation of levies to promote orderly growth. Sector calls for timely measures to revive momentum and enable telcos to meet such regulatory demands. Strengthening the connectivity backbone will be imperative for ensuring long-term sustainability and economic value add,” Prashant Singhal, EY Emerging Markets - Technology, Media & Entertainment and Telecommunications Leader, said.

Some of the analysts said the decision is favourable for the near-term because of the cash-flow respite afforded with payments staggered across ten years.

“However, the liability remains sizeable, so it will put pressure on the balance sheets of the affected telcos. Most telcos have already paid their AGR dues in excess of 10 per cent of their total liability. If that is considered, it would mean no incremental cash,” Sachin Gupta, Senior Director, CRISIL Ratings, said.

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