What Airtel's first instalment of AGR dues means for telecom sector

Airtel may have coughed up Rs 10,000 crore out of its dues and Vodafone-Idea, which has the highest arrears, has said it will pay up soon. But the crisis in India's telecom sector over the AGR, or aggregated gross revenue dues, is far from over. With the Supreme Court standing firm and the government now seemingly no longer in a position to help out the telcos, the long term question is, what are the prospects for the three mobile operators—Airtel, Vodafone-Idea and Reliance Jio—going forward?

Or more worrisome for mobile phone users, what kind of tariff hikes this would lead to.

Already, ever since the initial SC order in October asking telcos to pay the AGR dues came in, all the three mobile operators had raised tariffs by as much as 33 per cent, the first time since Jio came in with cut-throat cheap rates and upended the competition three years ago. That time, it led to a mobile phone and internet boom across the country, piggybacking on some of the lowest data charges in the world. 

All that could be a thing of the past soon if the AGR body blow is too much for the operators to handle. Experts estimate that by the end of this year, phone users in India who presently enjoy some of the lowest charges for voice and data will be paying as much as 30 per cent more.

This could go up even more if the operator with the biggest arrears, the Aditya Birla-owned Vodafone-Idea buckles under the weight of the financial crunch. Vodafone-Idea's arrears have been estimated at anything from Rs 44,000 crore to Rs 53,000 crore. While the company has said it was doing its own internal estimate on how much is owned and will pay up soon, group chairman Kumarmangalam Birla had declared, on more than one occasion in the recent past, that he would rather shut down his telecom business than pay the massive arrears. With the company consistently posting losses and losing subscribers in recent times, could this be the final nail in the coffin?

If that happens, India's mobile telephony sector, one of the biggest in the world with over one billion subscribers aided by low tariffs, will end up becoming a duopoly between Reliance's Jio and Bharti's Airtel. There could then be good chances that tariffs, particularly data, could see a dramatic spike.

AGR issue stems from the late nineties when licenses were grabbed by the new private telecom players bidding huge amounts, and then claimed it was hard to pay them up. To sort the issue out, the government gave them the option to migrate to a revenue sharing model. According to this, all operators had to pay up 8 per cent of the total, or 'aggregated', revenue as license fee and 3 to 5 per cent as spectrum usage charges. While the operators argued that AGR should be calculated on income from telecom service only, the government's stand was that AGR should include income from everything, from dividend and interest to income from investments and even sale of assets.

In 2005, the Cellular Operators Association of India (COAI) took the Department of Telecom to court on how exactly AGR should be defined. While TDSAT (Telecom Appellate Tribunal) ruled in favour of the telecom operators, DoT took it to higher courts, with the Supreme Court finally settling the issue in favour of the government in October 2019 that AGR includes all income and that the humongous amount due, piling up over all the years the case kept dragging on, should be paid up within three months. Last week, as telcos approached the court for relief, the apex court, instead, got particularly miffed with the fact that not only had its order not been implemented, the licensing policy wing of the telecom ministry had actually issued a directive to all concerned officials not to take any action on the telecom operators for not paying up.

For the mobile operators, this order could not have come at a worse time. Post-Jio, both Airtel and Vodafone-Idea have been facing financial strain. As if India's ARPU (average revenue per consumer) being the lowest in the world was not enough, Jio's aggressive pricing had meant Airtel and Vodafone-Idea had to match it, no matter what their financial condition was. This, even as Vodafone's merger with Idea left the company in doldrums, while Airtel was still to properly recover from its many botched business ventures in Africa.  

Interestingly, about 15 licensees have been affected by the SC judgment, though the highest arrears due are from Airtel, Vodafone-Idea and Tata Teleservices. The others include public sector companies who brought licenses in the auction like Gas Authority of India (GAIL), RailTel and National Powergrid Corporation. These companies, which have minor telecom operations or none at all, say they are facing paying up a share of income from their other businesses, in this case, and have appealed to the Prime Minister to intervene in the matter.

While rise in mobile rates may pinch a hole in your pocket, the only silver lining under the circumstance is this—a massive inflow of AGR dues, estimated to be around Rs 1.5 lakh crore into the government exchequer, augurs well for a nation reeling under an economic slowdown. At least, Nirmala Sitharaman should be happy.