AGR payments: Reliance Jio slams peers, questions telecom sector stress

Says incumbents have enough resources, monetisation opportunities pay up

Reliance Jio on Wednesday attacked incumbent operators, saying it disagreed with “the threatening and blackmailing tone” of the Cellular Operators Association of India (COAI) letter.

In a letter on Tuesday night, the COAI had written to Communications Minister Ravi Shankar Prasad, claiming that the Supreme Court (SC) judgment on the adjusted gross revenue (AGR) will lead to a monopoly in the sector and the government’s digitisation programme will suffer.

The Supreme Court (SC) had on October 24 agreed with the Department of Telecom’s (DoT’s) definition of the AGR, asking the telcos to pay dues and interest amounting to Rs 1.33 trillion within three months.

In its letter of protest addressed to COAI Secretary General Rajan Matthew, Jio said it had taken “strong umbrage at the COAI exploiting the legitimate payout obligations to create alarmist propaganda”. It also alleged “it appears that this sum was used for expanding some other business as per their (incumbents’) commercial decisions”.

A top executive of Jio said: “We do not agree to the contention of the incumbents that they are not in a financial position to pay their legitimate dues.” In its letter, Jio said, “operators have capacity and enough monetisation possibilities to comfortably pay government dues”.

The COAI had pleaded with the DOT to “not to press for the AGR dispute payment and grant waivers”. It also reiterated its earlier requests on licence fee and spectrum user charge, and to put in measures to check predatory pricing.

The letter said this crisis would exacerbate the stress in the industry and be potentially catastrophic, investments would be curtailed, services could deteriorate, jobs could be lost, and government revenues from the two operators of over Rs 60,000 crore per annum come under threat. It also sought urgent intervention of the government to “avert such an unprecedented impact on the financial health of our member companies”. 

Jio has said the SC judgment will have no impact on the government’s digitisation programs, as operators were in any case not investing sufficiently and have been “shedding crocodile tears” by claiming financial stress.

It contended that despite highlighting the financial stress, the incumbent service providers “have chosen to continue with their below-cost tariffs”, even though there was no compelling pressure to do so, creating their own financial problems. It said the government “should not be obliged to bail them out for their own commercial failure and financial mismanagement”.

Exposing the deep divide amongst incumbent operators and Reliance Jio in the COAI, which seems to be getting worse, the disruptor has also alleged that “undue haste” was shown in issuing the letter at midnight. This happened despite Jio assuring the COAI of giving comments on Wednesday. Jio said this had led to a “serious breach of trust”.

Jio also said COAI was functioning like a “mouthpiece of two operators”. Sources said it would write to Prasad in response to COAI’s letter.

Based on current data, analysts said Bharti Airtel had enough opportunity to monetise and pay the AGR dues. For instance, the proposed merged entity of Bharti Airtel and Indus Towers has been valued at $14.6 billion. With a 37.2 per cent shareholding in the entity (provided Idea and Providence sells their entire stake in Indus Towers) it is valued at $5.43 billion.

That apart, Bharti Airtel holds a 68.31 per cent stake in Airtel Africa, which has a market capitalisation currently at $3.02 billion. Its current gearing in Airtel is 4.1 times of the earnings before interest, tax, dividend and amortisation, providing it with a cushion to raise more loans if they want to.

And, the promoters have approximately 28 per cent shareholding in Bharti Airtel, which based on Wednesday’s market capitalisation is Rs 1.89 trillion.

In the case of Vodafone Idea, the shareholders have to pitch in. And, they could generate cash through monetisation of their tower assets. The Idea group can only monetise 11.5 per cent stake that it has in Indus Towers, pegged currently at Rs 5,600 crore, according to some estimates.

However, in the case of Vodafone, which would have 29.4 per cent in the merged tower entity, the value of its holding is equivalent to $4.3 billion.

Vodafone Idea on its own has already announced that it would also monetise its fibre assets, which JM Financials said, would give them about Rs 120-130 billion. The question is whether the shareholders are ready to monetise and bring in the money.

Vodafone Plc, when asked whether they will put in more funds, said: “We are not commenting.”