What is going on in Telecom Sector in India?

What is going on in Telecom Sector in India?

by Nikita Bhoota Last Updated: Jun 26, 2020 - 03:30 am 96.6k Views

The Supreme Court (SC) has provided time till the third week of July on adjusted gross revenue (AGR) for telecom companies (telcos) to submit financial statements and for the DoT to consider telcos’ proposals. Notably, the SC’s stance towards telcos has recently somewhat softened. It is likely that the SC has limited options, in terms of forcing telcos to make payments, and that it will eventually allow staggered payment of AGR dues. With the government keen on ensuring Vodafone Idea Ltd (VIL’s) survival, we expect an environment conducive for tariff hikes. Bharti and JIO should benefit from this; VIL’s survival is positive for Infratel.

Pending dues for Bharti Airtel and VIL:

The latest numbers quoted as AGR dues in media reports are Rs439bn/Rs582bn for Bharti/VIL. In February and March 2020, Bharti/VIL has paid Rs180bn/Rs68bn to the government. If one goes with the latest numbers mentioned in media reports, pending AGR dues for both companies come to Rs259bn/Rs514bn

SC gradually softening stance:

In the past 2 hearings, VIL’s Counsel and the government (Solicitor General) have repeatedly highlighted to the SC that VIL will neither be able to pay such a large sum upfront nor will its directors be able to furnish personal guarantees. They have also driven home the point that VIL will be forced to shut down, if the SC were to demand immediate payment. In our view, the SC is gradually coming round to this viewpoint, which possibly explains its softening stance. We expect the SC to eventually allow deferred payment.

The government may provide other relief measures:     

The government can also provide concessions to the industry, in the form of reduction of regulatory levy, interest rate for telco dues and GST rate, and allow a set-off of GST refunds against AGR dues. Regulation on floor prices may also come in a few months.The potential reforms that the government can consider -

  • LF and SUC cut: This is the revenue share paid to the government (LF + SUC) by telcos. It is currently 12%. TRAI has been asking the government to cut this to 8%.
  • Interest rate reduction: The government charges 9.75% interest on spectrum instalments. This was fixed in 2014/15, when rates were higher. G-Sec yields have, since, fallen by 200bps and the government can pass this on to telcos.
  • GST rate cut: The industry is making representations to the govt. to cut the GST rate on telecommunications, from 18% to 12%, considering the essential nature of telecom services.
  • Allowing a set-off of GST refunds against AGR dues: JIO/Bharti/VIL have GST credit of Rs200bn/Rs100bn/Rs80bn pending from the government. The government can consider allowing this as a set-off against AGR dues.
  • MTR regime extension: The current regime of 6p/min MTR is set to expire in December, 2020. TRAI has the option of extending this date, though the telcos which benefit would be influenced by the actual calling patterns at that time.
  • Cheaper spectrum: The government can increase spectrum supply and make it low-priced, so that extra traffic can be more comfortably accommodated.
  • Other indirect measures: are reduction in handset duties and incentives for local manufacturing, which can reduce cost for both, users and telcos.


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