Blow to telcos as Supreme Court asks them to pay Rs 92,000 cr to govt

The Supreme Court on Thursday ruled in favour of the government on the AGR (adjusted gross revenue) issue, with grave implications for the sector, pushing the stocks of telcos down sharply.

A bench led by Justice Arun Mishra, A.A. Nazeer and M.R Shah, gave the ruling. The government and the telecom sector were locked in a fight over the definition of AGR.

Shares of Vodafone Idea and Bharti Airtel fell sharply after the order came in just after 1 pm.

At close of trade on BSE, Vodafone Idea had plunged 23.4% to Rs4.33, touching a 52-week low of Rs4.10. Bharti Airtel shares fell nearly 10% soon after the news, but had recovered to end 3.3% higher at Rs372.45.

Bharti Airtel said it was ‘disappointed’ by the verdict, which will ‘further weaken the viability of the sector as a whole.’

“We are disappointed by the verdict of the Hon’ble Supreme Court…This decision has come at a time when the sector is facing severe financial stress and may further weaken the viability of the sector as a whole,” an Airtel spokesperson said in a statement Thursday.

Industry body COAI said the Supreme Court ruling will deal a “disastrous blow” to the industry, given its precarious financial condition. “The question that arises is whether this is the financial straw that finally breaks the back of operators,” Cellular Operators' Association of India (COAI) Director General Rajan Mathews told a news agency.

Analysts also projected a grim picture for the sector.

"Telecom sector is under immense financial stress admitted by all stakeholders. Further demand of Rs92,000 crore will dampen the sentiment of telecom operators and raising funds for broadband, network expansion and Digital India will hit a significant roadblock," said Prashant Singhal, Emerging Markets, Technology, Media and Telecom Leader, EY.

He added that the impact will not be limited to just telecom operators but will have a domino effect on larger digital value chain. "This requires immediate intervention by all stakeholders to get the sector back in shape.”

The ailing sector had claimed through the unified operators association that the AGR only include license and spectrum fees.

The government on the other hand was insistent that it would include much else that would take the dues of the sector to thousands of crores.

In 2015, the TDSAT had ruled that it would include apart from license fees and spectrum user charges, rent, dividends and profits on the sale of assets.

The TDSAT has excluded bad debt, forex fluctuations and sale of scrap from it. Both sides had challenged the order. Telcos have to pay around 3 of AGR as spectrum charges and another 8 per cent as license fees.

The dues are estimated at well over Rs 92000 cr. Though the government may be able to only recover only half of that.

Most operators have either exited the sector post the 2G ruling or are not doing well. The entry of Reliance Jio into the sector has only made things worse for the old players such as airtel and Vodafone.

The sector also had debts of over Rs 7 lakh crore.