SC dismisses telcos’ plea to recalculate AGR dues

Vodafone Idea is likely to be the most adversely hit by the court verdict

In a blow to the telecom sector, the Supreme Court on Friday dismissed the petitions of Vodafone Idea and Bharti Airtel seeking correction of alleged errors in calculating the dues linked to adjusted gross revenue (AGR). With an accumulated debt of ~1.8 trillion, Vodafone Idea is likely to be the most adversely hit by the court verdict.

Vodafone Idea, which has been struggling to remain a going concern, calculated its remaining AGR dues at around ~21,500 crore after making a payment of ~7,800 crore. However, the Department of Telecommunications (DOT) had arrived at around ~58,000 crore as total AGR liability for Vodafone Idea. Dot’s calculation was around ~28,700 crore more than Voda Idea’s. Bharti Airtel too had contested the DOT calculation of ~43,980 crore total AGR liability for the telco. Bharti Airtel said it had to pay ~13,000 crore more, having already made a payment of ~18,000 crore. The DOT calculation exceeded Bharti Airtel’s by around ~12,980 crore.

Both Vodafone Idea and Bharti Airtel stocks reacted to the development. While Voda Idea shares dropped 15 per cent and Bharti 2.5 per cent in intra-day deals, they ended the day with 9.66 per cent fall and a marginal rise of 0.4 per cent, respectively, on BSE.

The Supreme Court on Monday had observed that it had said not just once but twice and thrice that the AGR dues can’t be re-computed, and reserved the order.

The AGR calculation row surfaced after the Supreme Court on September 1, 2020, allowed telecom companies to pay their AGR dues to the government in instalments spread over a 10-year period, beginning with an upfront payment of 10 per cent of the total. The payment timeline started from April 1, 2021.

“Vodafone Idea (VI) has been losing market share in almost all the circles and has also been preserving financial liquidity as evident from moderation in capex intensity and lukewarm participation in the recent spectrum auctions. However, from FY23 onwards, the break-even EBITDA required by VI to honour its debt and regulatory (AGR) obligations and towards capex would be fairly elevated,” Priyanka Bansal, associate director, India Ratings and Research, said.

Experts believe that the decision could derail recovery in the telecom sector.

"This will not bode well for recovery in the sector and is likely to protract the same, given the elevated debt levels and very low tariffs. The industry is staring at high commitments towards debt repayments and DOT payments in the coming few quarters, with next major payments due in March-april 2022,’’ pointed out Sabyasachi Majumdar, senior vice president & group head, ICRA Limited. In order to meet these, the industry participants will have to look for avenues of fundraising and/or asset monetisation, in addition to focus on substantially improving the ARPU levels, Majumdar said.

Vodafone Idea counsel Mukul Rohatgi said the AGR figures were not cast in stone and SC had the powers to correct the arithmetic error. The counsel had urged that the calculations be placed before DOT for the department to take a call.

Solicitor General Tushar Mehta had however informed the court that he had not received any instructions from DOT on allowing correction of errors.

Bharti Airtel's counsel had said that there were cases of duplication and that payments made were not accounted for in the computation of AGR dues. Tata Teleservices argued that the SC judgement only prohibited re-assessment and did not bar rectification of calculative errors.

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.

SC in October 2019 had delivered the verdict on the AGR issue for calculating government dues of telecom companies such as licence fee and spectrum usage charges. 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 DOT had in March moved a plea seeking staggered payment over 20 years.