India Could Lose This Private Telco If Govt Doesn't Provide Relief
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After what has been a tumultuous few months for the Indian telecom sector, it looks like the feeling of gloom and doom hasn’t died down.
On Friday, the chairman of the Aditya Birla Group said that Vodafone Idea could shut down if there was no additional relief from the government.
"If we are not getting anything then I think it is (the) end of story for Vodafone Idea,” said Kumar Mangalam Birla, speaking at the Hindustan Times Leadership Summit.
Vodafone Idea was formed by the merger of Birla’s Idea Cellular and British telecom giant Vodafone’s India operations last year. The merger followed a severe loss of market share for both companies, after Reliance Jio disrupted the sector by virtually making all voice calls free and offering cheap 4G internet data.
Birla’s comments were directed at the massive annual gross revenue (AGR) dues that telcos have been asked to pay, after losing a court battle with the central government.
It resulted in massive losses at the bottomline for both Bharti Airtel and Vodafone Idea in the September quarter. For consumers, the pressure on telcos has resulted in higher prices of data and calling.
The Issue of AGR
After the liberalization of the telecom sector in 1994, licenses were issued to telecom companies for a fixed fee. To provide relief and boost the sector, the government in 1999 provided an option to licensees to shift to a revenue sharing model.
Under the new model, telcos needed to share a percentage of their AGR as license fee and spectrum usage charges.
However, the bone of contention was around how AGR should be defined. The Department of Telecommunications (DoT) said it should include all revenue, while telcos wanted AGR to comprise only core services. The companies wanted AGR to exclude profit on sale of assets, dividend and the likes.
After years of dispute, in October, the Supreme Court upheld the definition of AGR as stipulated by the DoT.
A few weeks later, the DoT sent letters to telcos, asking them to pay their AGR dues for the last 14 years by January 24.
Both Bharti Airtel and Vodafone Idea have moved court with a review petition.
"It does not make sense to put good money after bad. That would be (the) end of story for us. We will shut shop," Birla said in response to whether the company would pour in more cash.
His comments mirror those of Vodafone’s chief executive officer Nick Read. Last month, Read said that Vodafone Idea could head for liquidation unless there was some relief. He later came up with an apology letter, saying that the company had been engaged in talks with the government and that the government was willing to help the industry.
Birla sounded hopeful of the government doing something to help the struggling telcos and the sector.
“They (the government) have realised the fact that this is a very critical sector. The whole digital India programme rests on this. This is a strategic sector,” he said.
Last month, the government deferred the payment due from telecom companies for spectrum bought in past auctions by two years.