India’s telecom crisis has deepened with two leading companies — Vodafone Idea and Bharti Airtel — coming out with a huge combined loss of Rs 73,967 crore for the September quarter of the fiscal 2019-20, threatening the ability of the two firms to “continue as a going concern”.
Vodafone Idea (VIL) alone posted a net loss of Rs 50,922 crore for the second quarter, the highest ever net loss reported by a company in India. The company’s performance took a hit on account of an exceptional charge of Rs 25,680 crore it took during the quarter, due to the recent Supreme Court ruling on adjusted gross revenue (AGR).
The company has made provision for potential payments that it will have to make to the Department of Telecommunications (DoT). VIL accounted for the estimated liability of Rs 27,610 crore related to license fee and Rs 16,540 crore related to spectrum usage charges up to September 30, 2019, including the interest, penalty and interest thereon of Rs 33,010 crore.
Bharti Airtel on Thursday posted its biggest consolidated net loss at Rs 23,045 crore for the July-September quarter on the back of provisions for the licence fee and spectrum usage charge (SUC) based on the definition of the Supreme Court of what constitutes AGR.
Supreme Court AGR order impacts telcos’ books
While the adverse Supreme Court judgment last month on the longstanding adjusted gross revenue (AGR) case came as a big blow for telecom operators in India, the impact is now being seen in their books. Vodafone has recently said that the value of its joint venture in India has come to zero on various factors including the judgment. The losses posted by the two telecom operators indicate the struggling state of the firms, which now are seeking relief from the government.
The company made an exceptional charge during the quarter of Rs 22,394 crore (net of tax), which comprises a charge on account of licence fee and SUC of Rs 16,815 crore and Rs 11,635 crore, respectively.
Vodafone said in a statement, “It is to be noted that our ability to continue as going concern is dependent on obtaining the reliefs from the Government and positive outcome of the proposed legal remedy.” Vodafone Plc’s CEO Nick Read said on Tuesday that the situation in India had reached a critical stage, and had added, “If you’re not a going concern, you’re moving into a liquidation scenario — can’t get any clearer than that.”
“The management is reviewing its options and remedies available, including but not limited to filing petitions before the Supreme Court and also seeking other reliefs, with others affected in the industry, from the government. As on the date, the management understands that the government has formed a high level committee of secretaries across ministries, to assess the stress in the industry and recommend suitable measures,” Bharti said in a statement. Airtel has raised doubts over its ability to continue as a “going concern”.
Airtel MD and CEO, India and South Asia, Gopal Vittal said in a statement, “On the AGR verdict of the Supreme Court, we continue to engage with the government and are evaluating various options available to us. We are hopeful that the government will take a considerate view in this matter given the fragile state of industry”.
During the preceding quarter, Bharti had posted a net loss of Rs 2,866 crore.
Vodafone, along with other incumbent operators, was slapped with a massive licence fee and spectrum usage charge of more than Rs 40,000 crore, after the SC ruled that telecom operators would have to pay their licence fee and spectrum usage charge based on their gross revenue, which would include even revenues from non-telecom licence business. The total industry due as a result of it went as high as Rs 1.33 lakh crore. The Supreme Court has given the companies three months time to pay the dues. However, the government has set up a secretaries panel to see what kind of relief package can be drawn up by the government for the financially stressed telecom operators.
Vodafone further said that through Cellular Operators Association of India (COAI), it has made representations to the government to provide relief to the telecom sector. The relief sought, includes request to not press for the AGR liability payment and grant waivers, not levy SUC on non-licensed revenue / income, reduction of license fee and SUC rates, use of GST credit for payment of government levies and allow payment to be made in installments after some moratorium and grant a moratorium of two years for the payment of spectrum dues beyond April 1, 2020 up to March 31, 2022.
Ravinder Takkar, MD-CEO VIL, said “We are in active discussions with the government seeking financial relief following the recent Hon’ble Supreme Court ruling. At the same time, we remain highly focused on rapid network integration and 4G coverage and capacity expansion in our key markets”.
In the June quarter of the current fiscal, Vodafone reported a net loss of Rs 4,908 crore. VIL had reported a net loss of Rs 5,004.6 crore at the end of December quarter, and a net loss of about Rs 4,974 crore in the year ago September quarter.
Vodafone’s operational metrics in the second quarter continued to deteriorate as customers continued to leave the network. In the September quarter, VIL’s revenue declined 3.8 per cent sequentially to Rs 10,840 crore, impacted by seasonality and by severe floods in company’s major markets.
The company’s subscriber base stood at 303 million (VLR basis) versus 322 million in the preceding quarter. In terms of the operating metrics, VIL recorded ARPU of Rs 107 versus Rs 108 in Q1FY20.