January 18, 2020 4:08:45 am
In a major setback to the telecom sector, the Supreme Court on Thursday rejected a petition filed by telcos seeking a review of its October 2019 order that had upheld the government’s definition of what constitutes adjusted gross revenue (AGR). Telcos will now have to pay around Rs 1.47 trillion, which includes interest, penalties, and interest on penalties by January 23. Bharti Airtel, which is reportedly considering filing a curative plea, faces an estimated demand of Rs 35,586 crore, while Vodafone Idea is expected to pay around Rs 53,038 crore — significantly higher than its current market capitalisation. Notwithstanding the provisions already made by telcos towards these payments, the verdict will add strain to their already precarious financial position, impairing their ability to make fresh investments, and perhaps even their viability.
A cash-strapped government, faced with the unenviable task of having to find resources to stimulate a slowing economy, will undoubtedly welcome the verdict. Yet its myopic approach — its insistence on including revenue from non-core activities such as rent, dividend, and interest as part of AGR — may end up creating a duopoly structure, with a weak second player. Statements from both partners that Vodafone Idea may have to shut shop unless relief is granted from the Supreme Court order underline the seriousness of this prospect. The ripple effects of a telco shutting down will be felt across the banking sector still struggling under bad loans. Whether or not consumers benefit from such a market structure does not seem to have been factored into the government’s consideration.
In December last year, telcos had announced tariff hikes, bringing an end to the brutal price war. But that seemingly coordinated action is unlikely to be sufficient for the sector’s long-term sustainability. And though the government had previously provided telcos a two-year moratorium on spectrum payments, more needs to be done. There are suggestions that the government could opt for a staggered payment plan. But this is not a solution. The government should begin by giving up its demand of interest and penalties — around 75 per cent of the AGR dues are on account of penalty, interest, and interest on penalties. It should then undertake a review of the current regulatory regime, especially its position on licence fees, spectrum usage charges, and pricing.
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