What SC ruling means for the future of telecom sector and customers

If further consolidation happens with Vodafone’s exit, subscribers can be sure of further tariff hikes as the two strong players seek to increase margins.

Telecom AGR Supreme Court
As of now, no telecom operator had abided by the Friday midnight deadline set by DoT for getting all AGR dues. | iStock Photo

A perplexed friend called up yesterday, wondering about the sudden rise in the Bharti Airtel stock on the bourses, right after the Supreme Court asked incumbent telecom operators to immediately settle thousands of crores of past dues. After all, if the general perception that the apex court’s order would deal a death blow to the telecom industry was correct then why were investors cheering Bharti?

The answer to this question explains the roller coaster ride of one of the world’s biggest telecom markets in recent months. Bharti’s scrip was rising since investors speculated that the SC order would force at least one of the top three operators to shut shop. This would mean a significant reduction in competition for the remaining two private telecom operators to generate better earnings, and therefore, also better gains for investors of Bharti.

Analysts with a Mumbai-based brokerage pointed out that the SC decision yesterday makes India’s telecom market a two-horse race between Reliance Jio Infocomm and Bharti Airtel unless the government intervenes.

“We see this event as a net positive for Bharti Airtel as although it will have to pay ₹35,600 crore towards liabilities, the decimation of the weak operator will significantly enhance its market share. Also, the company is better placed to gain revenue market share considering it is the only private operator left with 2G network,” they said.


There was a time not long ago when India had nearly a dozen telecom operators who were competing fiercely with each other to offer rock bottom call tariffs, keeping subscribers happy. But first, the 2G scandal and the subsequent cancellation of 122 telecom licenses by the SC changed the very dynamics of the market overnight, since many foreign operators were forced to exit India.

Then, Jio entered in 2016 with unprecedented freebies and data capabilities, and this again brought rapid change. The upshot of all these developments was that from a market with nearly a dozen telecom operators, India is now left with only three (excluding state-owned BSNL). These are RJio, Bharti Airtel and Vodafone Idea.

There is a widespread belief that Vodafone Idea may file for bankruptcy after yesterday’s AGR order by the SC though the company has not confirmed its next course of action till now. A spokesperson did not respond to messages seeking comment till late yesterday.

News reports say that the board of directors of Vodafone Idea may be meeting in Mumbai today to determine the next course of action and that filing for bankruptcy is one of the options. If Vodafone does decide to liquidate its investment in India, we will become a virtual telecom duopoly, since state-owned BSNL-MTNL does not have a significant share of the wireless market.

So how did the AGR dues of telecom operators pile up to thousands of crores?

According to industry estimates, the total dues to the Department of Telecom could be nearly ₹1.5 lakh crore for 16 players (telecom and non-telecom companies). Of the three telcos, the liabilities are estimated to be nearly ₹35,000 crore for Bharti, ₹55,000 crore for Vodafone Idea and ₹14,000 crore for Tata Teleservices.

The calculation of AGR became contentious after the government offered an option to the telecom operators to switch to a revenue-sharing model around 1999 instead of paying a fixed license fee. The dispute between the Department of Telecom (DoT) and operators pertains to how AGR should be calculated. The DoT’s stand has been that AGR includes revenue from telecom as well as non-telecom services while telcos have been arguing that only revenue coming in from telecom services should be shared with the government as per a set formula.

But after several years of this dispute, the apex court has now ruled in DoT’s favour. This means huge payouts are due from Bharti, Vodafone Idea and Tata Tele. The telcos have been seeking staggered payments in order to bear the costs of raising such large amounts of money.

The latest SC order not only makes a shakeout in the market imminent, but is also likely to have a major impact on state-owned banks, which have a large exposure to the telecom industry. News reports suggest that the State Bank of India has the single highest loan exposure to the telecom industry at about ₹20,000 crore. And as per RBI data, the total exposure of banks to the telecom sector is over ₹90,000 crore.

Also read | DoT mulling penal action against telcos for payment delay: Sources

So what are the options before the government?

As of now, no telecom operator had abided by the Friday midnight deadline set by DoT for getting all AGR dues. A senior employee at one of the affected telcos pointed out that the midnight deadline was set by DoT and that the apex court had set no deadline in its order for telcos to clear their AGR dues. However, the next hearing on the matter is scheduled for March 17.

Bharti has said it will make a part payment of ₹10,000 crore by February 20, while there is still no word from the other two operators. Will the government offer some relief on payments or let banks, as well as telcos, suffer while it is resigned to a huge shakeout in the telecom industry?

The goings-on in the telecom market may not just be inimical to banks but also to subscribers. If further consolidation happens, telecom services are sure to get dearer. India’s historically low telecom tariffs have already been hiked by anywhere between 25–40% two months back. Higher tariffs have already translated into improved ARPUs (Average Revenue Per User) for Bharti as well as Vodafone Idea and provided each of the operator with some cushion for the AGR payout.

But if further consolidation happens with Vodafone’s exit, subscribers can be sure of further tariff hikes as the two strong players seek to increase margins.