Three developments in recent months have given an indication that Vodafone Idea, India’s largest wireless telecom company, would may get the much needed breather, as it has been struggling for survival under the burden of adjusted gross revenue (AGR) dues.
One, Indian Banks’ Association (IBA) has made a call to the Department of Telecommunication (DoT) to save Vodafone Idea from bankruptcy. Second, the DoT, as the Indian cabinet took stock of the crisis in the telecom industry, made an unprecedented proposal for collection of AGR dues worth £14.7 billion suggesting that companies, including Airtel and Tata, pay the money over a period of 20 years and not be charged any interest on the staggered amount beyond October 24, 2019, the day when the Supreme Court gave its judgment on the matter.
And, the third relief measure has already been under discussion. As it faces an AGR burden of £5.8 billion, Vodafone Idea has asked government for adjustment of £800 million of Goods and Services Tax (GST) refund towards AGR dues. Vodafone Idea is also batting for reducing license fee from existing 8 per cent to 3 per cent, and spectrum usage charges (SUC) from about 3 per cent currently to 1 per cent.
The IBA’s Interest
“As on 31.12. 2019, SBI had NPAs of around £1.22 billion in the telecom space and many other banks are saddled with telecom NPAs. Any further provisions for bad debts from this sector will put a huge strain on the capital position of banks” the Indian Banks’ Association (IBA) wrote to the Department of Telecommunications. The SC on February 14 ordered the telcos to pay their dues by the next date of hearing, or March 17.
Government in Action
The government this week has filed an application in the Supreme Court, requesting that telcos be allowed to spread the payment of AGR dues over 20 years or less, at a reduced interest rate of 8%, in a bid to prevent an “adverse impact” on the economy, jobs and millions of consumers. “…the Centre has taken the decision to seek approval of this court to a formula arrived at for recovery of dues from telecom service providers,” stated the application .
The application said the formula was arrived at after widespread consultations at government levels, keeping in mind vital issues related to the financial health and viability of the telecom sector; and the need for maintaining competition and a level playing field in the interest of consumers.
Vodafone Idea, which serves over 300 million users and directly employs some 11,000. Even one operator going bankrupt would send shock waves through the entire economy and, mindful of that, the government was proposing that the AGR payment be spread. This is the first time the government has officially acknowledged the negative implications of one of the three existing operators going bust.The government’s proposals would provide immediate relief to primarily cash-strapped Vodafone Idea. It may also help Bharti Airtel and Tata Teleservices, which are also facing AGR dues.
Vodafone Idea bets on GST refund.
Apart from £800 million GST adjustment, Vodafone Idea is also reportedly mulling over seeking funds against its 11.5 per cent stake in Indus Towers, which is the largest tower company in the country. The funds generated from the deal would help relieve the liquidity crunch in the telco. These demands have been raised just before a meeting between Telecom Secretary Anshu Prakash, NITI Aayog CEO Amitabh Kant, and others. As the highest decision-making authority in the Telecom Ministry, DCC members are likely to discuss relief measures