AGR verdict: Voda-Idea to struggle; but duopoly may not be ideal solution

Telecom sector in India is likely to see consolidation in the coming days; however, duopoly may not be the ideal solution for a big country like India, said analysts after Supreme Court on Friday rejected the telecom companies' plea seeking new schedule of adjusted gross revenue (AGR) payments. READ MORE

Supreme Court slammed mobile carriers on Friday for non-payment of billions of dollars in government dues and threatened them with contempt proceedings if they didn’t pay up by March 17.

The court, which had asked companies including Vodafone Idea and Bharti Airtel to pay Rs 92,000 crore ($12.89 billion) in overdue levies and interest by January 23, had rejected petitions seeking a review of its order last month.

"Bharti Airtel and Reliance Jio, the telecom arm of Reliance Industries (RIL) will not face any issues. However, Vodafone Idea will struggle to survive unless they bring in a lot of money," said G Chokkalingam, founder & managing director of Equinomics. "There are many countries which have two telecom players, but the population size is not as big as India's. So, for our country whether duopoly in telecom sector is good or not, government has to take a call," Chokkalingam added. 

It must be noted that Reliance Jio has already paid Rs 195 crore to the telecom department to clear all adjusted gross revenue dues accounted till January 31, 2020. READ MORE

Among the incumbents, Bharti Airtel seems to be best positioned at present and should be able to meet obligations. Last month, the telecom major raised $3 billion through a combination of qualified institutional equity placement (QIP) and convertible bond offerings. Airtel has been the top performing telecom stock globally last year. In the past 12 months alone, Airtel’s market-capitalisation (market-cap) surged 135 per cent against 7 per cent rise in the combined market-cap of top 50 mobile operators. The top 50 mobile operators now have a combined m-cap of $1.63 trillion, up from around $1.52 trillion a year ago. Excluding Airtel, the industry’s m-cap is up by 5.6 per cent in the past one year. READ MORE

Dharmesh Kant, head of retail research at IndiaNivesh says the government and the Court wants companies to clear dues at the earliest. "The money has to go to the government. So, now ball is in the government's court whether they want to give more time to the companies to pay up. Bharti will manage as it has adequate money. The problem lies with the Vodafone Idea and considering the fact that the duopoly won't be a likely scenario the government wants this market to be; my sense is that DoT should intervene and should give some time to pay the AGR dues. The government would not want Voda-Idea to quit India," Kant says.