New Delhi: India’s telcos are staring at shelling out almost Rs 41,000 crore as additional spectrum usage charges if a case on the definition of adjusted gross revenue (AGR) in the Supreme Court goes in the government’s favour.
That figure, calculated by the telecom department, will be on top of the Rs 92,000 crore to be demanded from companies as licence fees and penalties. The government says AGR covers a telco’s entire revenue, while companies contend it should include only core services.
Bharti Airtel NSE -0.38 % and Vodafone Idea would account for almost 85% of the additional spectrum usage charges to be demanded.
The Department of Telecommunications estimates that Sunil Mittal-led Airtel will owe it over Rs 22,940 crore, including interest and penalties, while the dues of the entity formed by the merger of Idea CellularNSE 8.49 % and Vodafone India come to over Rs 11,000 crore, as per data seen by ET.
Although spectrum charges are not part of the case in the Supreme Court, a favourable order on the definition of AGR will strengthen the government’s bid to recover these dues, Department of Telecommunications official said.
“We can proceed with spectrum usage charge demands once the AGR ruling comes in,” said an official aware of the legal aspects of the matter.
The apex court reserved its order last month on the dispute over the definition of AGR, based on which both spectrum charges and licence fees are paid to the government. DoT says AGR should include dividends, handset sales, rent and profit from the sale of scrap, apart from revenue from services. Telcos counter that AGR should be limited to core telecom services alone.
Telcos currently calculate AGR on the basis of a telecom tribunal judgement in 2015, which includes some non-core elements. Accordingly, operators have paid up only what they estimated was due as licence fees and spectrum charges, and DoT continues to demand the remainder.
Spectrum charges have been brought down to 3% of AGR now from about 10% about a decade ago.
If DoT gets a favourable order, telcos, especially Airtel and Vodafone Idea – already facing pressure on revenue and profitability due to a price war since RelianceNSE 1.00 % Jio’s entry in 2016 – and high debt, will be imposed with a huge burden.
The two telcos “have not created any provisions against these liabilities, and any payments, if they arise, will put an additional strain on their already stretched balance sheets,” analysts at ICICI Securities Equity Research said in a note to clients.
Annual revenue of Bharti Airtel and Vodafone Idea in March stood at Rs 80,780 crore and Rs 37,092 crore, respectively. Debt for Airtel and Vodafone Idea at June end was Rs 1.16 lakh crore and Rs 99,300 crore, respectively. Both companies posted losses.
Bharti Airtel and Vodafone Idea declined to comment for this story.
Airtel shares gained 2% to Rs 356.15 at the close on the BSE on Monday, while Vodafone Idea advanced 2.5% to Rs 5.31.
“The government may want to only charge the principal amount, looking at the financial health of the sector, and may also give a couple of years to pay that off. That could be a possible scenario, assuming the decision was to be in favour of the government,” said Rajiv Sharma, co-head of research at SBICAP Securities.
The telecom sector’s AGR shrank by 25% to Rs 1.39 lakh crore in FY19 from Rs 1.85 lakh crore in FY17, government data showed.
“It is extremely worrisome because the amounts are very large, depending upon whether interest and penalties apply,” said Rajan Mathews, director general of the Cellular Operators Association of India.
“We keep saying that the overall intent of the government should be made clear – do they want to continue to extract money from the industry or do they want to allow the industry to retain funds to invest in the network?”