The Supreme Court on Tuesday allowed the companies to clear their adjusted gross revenue (AGR) dues in ten years and begin by making an upfront payment of 10 per cent of the total dues.
Telecom companies have to give an undertaking for paying the AGR dues as per the SC order. The payment timeline begins from April 1, 2021, and the first installment needs to be paid before March 31, 2021.
In a stern message to the telecom companies, SC said that any default in payment would invite interest, penalty and contempt of court.
According to the DoT’s calculations, Bharti Airtel owes the exchequer Rs 43,780 crore, of which the company has paid Rs 18,004 crore.
Vodafone Idea has paid Rs 7,854 crore of its Rs 50,399 crore dues. Tata Teleservices has paid about Rs 4,197 crore and the balance is about Rs 12,601 crore.
At the outset the decision may seem like a relief for the telecom companies, but the experts feel that the tenure could pose a grave challenge for the debt-ridden Vodafone Idea Ltd, which is grappling with financial woes and has time and again pleaded with the SC for a longer payment tenure to be able to sustain in the cut-throat telecom space.
“It is very disappointing, especially when the government had agreed to grant a 20-year payment schedule. It will put Vodafone Idea in a very difficult situation as its valuation will reduce, the customers will move away. It will also push the sector to a ‘duopoly’, independent analyst Hemant Joshi said.
Shares of Vodafone Idea were down 15 per cent on the BSE, after the verdict and those of Bharti Airtel were up 5.1 per cent.
Brokerage firm Motilal Oswal is of the view that the verdict is positive for Bharti and RIL, as liability of Aircel (Rs 14,000 crore) and Videocon (Rs 1300 crore) will not fall on Bharti and RCom (Rs 31,000 crore) will not fall on RJio who have acquired their spectrum.
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"Assuming 8 per cent interest rate, Bharti and VIL will now have to pay Rs 3,900 crore and Rs 7,500 crore a year respectively. With zero per cent interest rate, this reduces to Rs 2,600 crore/Rs 5000 crore, respectively," said Hemang Jani, Head Equity Strategist, Broking & Distribution, Motilal Oswal Financial Services.
Jani said that he expects Bharti Airtel to be able to manage the payment with no tariff hike built, while Vodafone Idea with EBITDA of Rs 6,000 crore should find it difficult to manage.
Saurav Kumar, Partner, IndusLaw, is of the view that 10 years is definitely below market expectations. Review petition is surely an option for the telecos which they would like to explore.
"However given that the Court has allowed for a staggered payment over 10 years, without any additional security is very positive for the telecos and they can live to fight another day," he said.
The apex court also said that the sale of spectrum should be decided by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy process.
Justice Arun Mishra said, we have requested the NCLT to decide as per law.
The Union government has filed an appeal with the National Company Law Tribunal that resolution plans of Reliance Communications and Aircel should not be approved until spectrum related dues are cleared.
The Counsel for bankrupt firm Aircel said that the company has filed an affidavit, which states that since 2016, there have been 8 spectrum trading agreements between Aircel and Airtel and they had the approval of the DOT.
ALSO READ: 10 years to pay AGR dues puts a question mark on Vodafone Idea's survival
On August 19, SC said that the telecom companies only have a right to use the spectrum and it is not an asset that belongs to them, the companies don’t own it.
On August 14, the Supreme Court sought details of the telecom operators using the airwaves allotted to the now bankrupt companies, including Aircel and RComm.
It directed the Union government, Reliance Jio, and RComm’s resolution professionals to produce documents to ascertain the AGR liabilities of RComm.
On August 10, the court had said the Union government should prepare a plan to recover AGR dues from bankrupt telecom operators, including RComm.
SC in October 2019 delivered the verdict on the AGR issue for calculating government dues of telecom companies such as licence fee and spectrum usage charges.
SC finished hearing the AGR case on August 24, almost a year after its verdict on the definition of the AGR.
During the course of almost one year, SC made several observations in the case, sought the roadmap for payment of dues from the companies and asked them to submit details of their financial accounts.
After the top court had rejected pleas by Vodafone Idea, Bharti Airtel and Tata Teleservices seeking review of the judgement which widened the definition of AGR by including non-telecom revenues, the Department of Telecommunications (DoT) had in March moved a plea seeking staggered payment over 20 years.
DOT had raised the AGR dues to the telecom companies after the Supreme Court crystalized the definition of AGR, similarly it can be done for the dues from bankrupt firms.
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