Home » India » Telcos get 10 years to pay AGR dues – india news

Telcos get 10 years to pay AGR dues – india news

The Supreme Court on Tuesday allowed telecom companies, including Bharti Airtel and Vodafone Idea, to repay about Rs 1.43 lakh crore in combined dues they owe the government over 10 years , offering a reprieve to the sector weighed down by heavy debt and under intense regulatory and competitive pressure in recent years.

The breather is short of the 15-20 years sought by the telcos, and which the court said was unreasonable, but came as a shot in the arm to the companies that missed a January deadline to repay their dues.The stock market rallied in response although Vodafone Idea shares took a beating on the perception that its problems were not over. The Department of Telecommunications (DoT) had proposed a 20-year window.

A bench headed by Justice Arun Mishra asked the managing directors (MDs) or chief executive officers (CEOs) of the companies to furnish undertakings or personal guarantees within four weeks for payment of dues.

The court ruled “that, at the first instance, the respective Telecom Operators shall make the payment of 10% of the total dues as demanded by DoT by March 31, 2021.”

“Telecom Service Providers have to make payment in yearly instalments commencing from April 1, 2021 up to 31, 2031 payable by 31st March of every succeeding financial year.”

“In the event of any default in making payment of annual instalments, interest would become payable as per the agreement along with penalty and interest on penalty automatically without reference to Court. Besides, it would be punishable for contempt of Court.”

The court ordered service providers and DoT to furnish a compliance report every year by April 7 each year. The top court said the sale of spectrum by telcos facing insolvency proceedings shall be decided by the National Company Law Tribunal (NCLT).

The decision will come as a relief to Vodafone Idea, which reported its eighth consecutive quarterly loss in the three months to June and expressed concerns about its ability to stay afloat. The company’s gross debt, excluding its lease liabilities, was Rs 1.19 lakh crore as of end-June.

Even so, the Supreme Court’s ruling that telecoms firms pay 10% of the dues owed by March 31, 2021 pushed Vodafone Idea’s stock down 12.76% to Rs 8.89 on the BSE.

“The window for Vodafone to raise funds, have better models and give payback commitments is small which is adding pressure on the stock,” said Abhimanyu Sofat, head of research, at stock brokerage IIFL Securities.

The BSE’s benchmark Sensex gained 0.71% to 38,900.80 points, and Bharti Airtel shares leapt 6.38% to Rs 546.75.

According to a previous court submission in July, Vodafone India’s dues as of October 2019 amounted to Rs 58,254 crore. It has paid Rs 3,500 crore and has outstanding dues of Rs 54,754 crore. Bharti Aritel had dues of Rs 43,980 crore in October, of which it has paid Rs 18,004 crore, leaving outstanding dues of Rs 25,976 crore.

Total dues owed by the industry amounted to Rs 1.69 lakh crore as of October; the figure has now come down to Rs 1.43 lakh crore.

The entry of Reliance Industries’ Jio Infocomm in late 2016 with free voice services and cut-price data forced many rivals out of the fiercely competitive market. Others such as Vodafone and Idea were forced to regroup, but continue to bleed and lose subscribers. Jio has already cleared its smaller backlog of charges.

“This {court ruling} is positive for Bharti Airtel and Reliance Jio and negative for Vodafone Idea,” said Gurmeet Chadha, strategist at Complete Circle Consultants in Delhi.

“Telecom is a gruesome business and when 5G comes you will have to pay more for spectrum. Eventually, unless Vodafone Idea raises significant capital or gets a strategic partner, we are headed for a duopoly.”

On October 24, the Supreme Court allowed the central government to recover its dues from telecom companies in a ruling that hit Bharti Airtel and Vodafone Idea the hardest. The court accepted the government’s definition of AGR or adjusted gross revenues— that it includes their income from revenue lines that are not central to their main business.

Income from sales of handsets, termination and roaming charges, rent and dividends should count as part of AGR, which determines what telecom companies pay as licence fee and spectrum usage fee, the court ruled in a verdict that came at a time when debt-laden service providers were already under intense pressure because of adverse regulatory orders,hefty levies and intense competition amid a price war set off by the entry of Jio. Vodafone Idea and Bharti Airtel both posted record losses in the September quarter.

The court order came in a 16-year-old case stemming from DoT claims that telecom companies had under-reported their revenue and thus paid less for spectrum and in the form of other levies.

At the Hindustan Times Leadership Summit on December 6, Aditya Birla Group chairman Kumar Mangalam Birla sounded a stark warning, saying Vodafone Idea, a joint venture between Vodafone and his group, would have to shut shop if no relief is forthcoming from the government to soften the blow from the Supreme Court verdict that telecom operators pay DoT the dues they owe in three months.

Birla,who is also chairman of Vodafone Idea, said he is hopeful the company doesn’t find itself in a situation where it needs to exit from the market.

“But, at the same time, if you ask me specifically, it is true we will shut shop if we don’t get relief. Because there is no company in the world that can pay that kind of fine in three months, it just doesn’t work like that,” Birla said at the time.

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