AGR verdict: Jio emerges winner as Airtel, Voda Idea face $7 billion bill

The Supreme Court on Thursday ordered phone operators in the country to pay the government a combined Rs 920 billion in past airwaves and license fees

In the latest body blow to India’s wireless carriers, Mukesh Ambani’s Reliance Jio has come out largely unscathed, bolstering its position as the top operator in the world’s second-biggest market by users.

The Supreme Court on Thursday ordered phone operators in the country to pay the government a combined Rs 920 billion ($13 billion) in past airwaves and license fees. The ruling came after a two-decades-old legal dispute between authorities and the companies over the payments.

In a market already bruised by a price war since Jio’s 2016 entry with free calls and cheap data, the biggest loser from the verdict is Vodafone Group Plc’s India venture -- Jio’s closest rival. The UK-based operator and its Indian partner now need to pay the government a combined $4 billion, a huge burden for a carrier that hasn’t made any profit since announcing their merger in 2017. Bharti Airtel, the No. 3 carrier, faces a bill of $3 billion, compared with Jio’s $1.8 million.

Underscoring the woes of the industry, Bharti Airtel and Vodafone Idea have racked up a combined net debt of almost $28 billion and face billions of dollars more in spending on introducing 5G networks. Bharti Airtel, controlled by tycoon Sunil Mittal, reported its first ever loss in the quarter through June.

“In case of full payment, VodaIdea will have no cash for capex or spectrum installments for next three years,” Jefferies said in a research note. “For Bharti, it will mean curtailing of capex. We await more clarity on amount and terms of payment.”

Shares of Vodafone Idea headed for their biggest two-day plunge on record. They tumbled as much as 16 per cent on Friday in Mumbai to a record low, following a 23 per cent drop on Thursday. Airtel was little changed after gaining 3.3 per cent Thursday.

Deep Pockets

Although Jio, backed by the deep pockets of Ambani’s Reliance Industries Ltd. oil-to-retail conglomerate, has spent $50 billion to build its nationwide network and had a debt of 840 billion rupees, it has reported quarterly profits this fiscal year after luring users away from Airtel and Vodafone. Reliance shares slipped 0.5 per cent after rallying 3.2 per cent on Thursday.

Still, the court’s endorsement of the way in which the government calculates the revenue of the telcos -- a share of which is paid as license and spectrum fees -- means Jio will face some pressure on earnings, according to Bloomberg Intelligence.

The Supreme Court is deciding when the carriers will need to pay the amounts.

Additionally, Vodafone faces the prospect of a $2.2 billion tax bill linked to its 2007 acquisition of Hutchison Whampoa Ltd.’s Indian operations. The U.K.-based carrier’s Indian unit, which agreed to merge with billionaire Kumar Mangalam Birla’s Idea Cellular Ltd., is fighting a government demand that came despite a ruling in its favor by the nation’s top court in 2012.

Vodafone Idea and Airtel have said they are disappointed with the ruling. The telcos may either appeal to a larger bench of the Supreme Court or ask the government to waive the penalties and interest or seek deferred payment options, Jefferies said.

The judgment throws up “two important facets,” according to Alok Shende, a Mumbai-based principal analyst for telecom at Ascentius Insights. “First, the problem can fester for years in the long drawn legal process, ballooning the final impact,” he said. “The second implication is that the policies often have an element of ambiguity that allows for different interpretations.”