SC's AGR ruling: India headed for a duopoly in telecom sector: Analysts

With Supreme Court ordering telecom dues to be collected based on Department of Telecommunication's demand, India may be headed towards a duopoly structure as the ruling has made matters worse for Vodafone Idea Ltd while Bharti Airtel and Reliance Jio are well placed due to strong balance sheets, analysts said on Thursday.

The apex court on Wednesday rejected the adjusted gross revenue (AGR) dues determined by telcos through a self-assessment exercise and ordered them to pay the principal together with interest and penalties.

It stated that non-payment of dues so far would be tantamount to contempt of court.

"Of interest, the self-assessment done by Airtel and Vodafone Idea Ltd (VIL) pegs their AGR liabilities at less than half of the levels determined by the Department of Telecommunications (DoT)," Morgan Stanley said in a note.

The Supreme Court will reconvene in two weeks to pronounce its judgment on the relief measures sought by the DoT including a payment period of 20 years.

Stating that the AGR issue "could create a duopoly structure," Morgan Stanley said: "The Supreme Court has not relented on the AGR dues, which makes matters worse for VIL. Airtel and RJio are well-placed thanks to strong balance sheets and could gain market share."
"We, thus, believe that the sector is likely to be heading towards a two (private) player market."
"In our view, such market share re-allocation would likely bene?t Bharti and Jio."
"The Supreme Court will hear the DoT relief measures in two weeks. If it doesn't accept these measures, significant challenges for VIL would arise."
"Bharti Airtel/RJio will continue to gain market share at the cost of VIL due to the latter's worsened financial health."
"Bharti is also generating free cash flow from its operations, and it has indemnity with Telenor for AGR dues which means the cash balance gap will be much lower for Bharti."