Supreme Court order on AGR dues is a lifeline for telecom firms

| Updated on September 02, 2020 Published on September 01, 2020

This would be the perfect time for the Centre to bring down levies and taxes on telecom companies — nearly 30 per cent of their revenues goes to the government

The Supreme Court’s decision to give telecom operators 10 years to clear dues related to adjusted gross revenue could bring some respite to debt-laden telecom operators, especially Vodafone Idea. The operator had reported a net loss of ₹73,878 crore in the fiscal ended March 2020 — the highest ever by any Indian firm. It also has a debt of over ₹1 lakh crore on its books. Had the apex court insisted on making the AGR payments of over ₹50,000 crore upfront, Vodafone Idea would have had to shut operations and declare bankruptcy. Although the operator may still struggle to match the competition from Reliance Jio and Airtel, the facility to pay the dues in a staggered form gives the beleaguered operator a shot at survival. The SC order brings closure to a dispute which has been brewing since 2003. This along with the Centre’s recent decision to give a two-year moratorium to telecom operators on pending spectrum payment should ease the financial burden on operators in the short term.

But much more needs to be done to alleviate the overall stress in the telecom sector. The combined industry debt amounts to ₹4.4 lakh crore. Both Vodafone Idea and Airtel have reported widening losses. The SC order would mean that the telecom companies will have to shell out 10 annual instalments of around ₹12,000 crore at 8 per cent rate of interest till February 2031. This will exert more pressure on cash-flows and leaves limited room for investing in network expansion, especially for Vodafone Idea. Data consumption is skyrocketing and consumers are demanding better services for which operators will need to buy expensive spectrum. To meet these requirements, operators will be forced to hike tariffs sharply in the coming months.

Affordable, efficient telecom networks lie at the heart of our digital future. The ongoing global crisis due to Covid-19 has only re-emphasised the importance of the Internet and communication networks. It is, therefore, critical that the telecom sector is kept in robust financial health. In addition to the staggered AGR payments allowed by the Supreme Court, this would be the perfect time for the Centre to bring down levies and taxes on telecom companies — nearly 30 per cent of their revenues goes to the government. Since the operators are buying spectrum through an auction mechanism, there is no reason to continue collecting licence fee or spectrum usage charge in the form of revenue share. The reserve price for spectrum also needs to be brought down to match current market sentiments. The industry should also focus on offering quality services instead of resorting to short-term regulatory manipulation. For example, the operators did not make any provision for paying the disputed AGR amount in the event of losing the legal battle. Finally, the court order should pave the way for addressing long-term telecom goals.

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Published on September 01, 2020
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