Last week IUC; This week AGR! Airtel, Vodafone Idea face worst Diwali ever after shares dumped

It is now going to be impossible for India to even dream of 5G! The biggest telecom service providers in India have burnt their fingers terribly! Supreme Court has rather harshly come down upon the private players like Vodafone Idea and Bharti Airtel to pay approximately Rs 20,000 crores each. Considering the fact that Airtel and Vodafone are already in financial distress, this decision adds up to their financial burden. With so much financial burden how can any service provider factor-in the investment in 5G?

The private telecom players had appealed to the Supreme Court, earlier, that non-telecom revenue such as rent, internet income, dividends income should be excluded from adjusted gross revenue (AGR). In 2006, TDSAT had decided the issue of AGR in favor of the telcos but DoT has been claiming dues of Rs 1.33 lakh cr payable by Bharti Airtel, Vodafone Idea & Reliance Communications - Rs 92,000 cr as license fee & Rs 41,000 cr as spectrum usage charge.

The Supreme Court, however, finally gave out its verdict after 14 years. The Supreme Court order says it has upheld an expanded definition of Adjusted Gross Revenue (AGR), which has put Rs 92,000 crore as pending dues to be paid by the telecom carriers.

Once the Supreme Court ruling was out, the stock market witnessed an unusual tumble. Vodafone Idea apparently lost 26% of its total value after investors heard the news and started dumping its shares. Airtel, on the other hand, did not suffer so much of a loss. A 10% dip was witnessed at the end of the day.

With the Interconnect User Chargers (IUC) not yet resolved and the AGR decision now is furthering the financial burden of Airtel and Vodafone Idea. They, together have to pay Rs 92,000 crores and those tracking the industry say that the money received by the government on account of AGR will support the revival package of BSNL-MTNL.

In response to the Supreme Court's verdict, Vodafone Idea released a statement that reads as below:

Statement from Vodafone Idea

24th October, 2019:

“Vodafone Idea is extremely disappointed by the Hon’ble Supreme Court judgment on the Adjusted Gross Revenue (AGR) case. The matter is 14 years old and pertains to the issue of whether revenue from other non-telecom related activities should be included in the AGR definition under the telecom licence conditions. The matter has already been through several rounds of litigation, which have been largely in favour of the operators until now.

We will study the ruling as soon as it is available, along with our legal advisers, to determine next steps. If there are technical or procedural grounds for doing so, this could include a Review Application.

Clearly this judgment has significantly damaging implications for India’s telecom industry, which is already reeling under huge financial stress and is left with only four operators. Significant investment of several billion dollars has been made in creating world class networks. Today’s order has huge impact on two private operators while most of the other impacted operators have exited the sector. We urgently request that the government engage on this matter in order to find ways to mitigate the financial stress for the industry.”

Amidst all this, will the consumers be affected by tariff hike? Might Not! At least for now until the festive season is over a tariff hike might not be in the cards.