Earlier this week, the Supreme Court bowled an absolute twister authorizing the government to collect unpaid AGC and other charges of Rs.92,000 crore. Most of these payments had to do with an old dispute between the DOT and the telecom companies. The dispute was whether government was entitled to a share of the non-core revenues or only the core revenues. The SC order puts that debate to rest. Telecoms need to give the government a share of their non-core revenues along with the penal amount and interest, which is what amounts to Rs.92,000 crore.
Supreme Court has a point
The COAI has objected to the order on the ground that it would put immense pressure on the financials of the telcos. More so, at a time when the telcos are already under pressure post the price war launched by Jio. In fact, Vodafone and Bharti Airtel have seen their ARPUs fall by more than Rs.50 in the last 3 years since Jio was launched. But that is hardly a justification. The core versus non-core revenue debate was a figment of the imagination of some smart lawyer and never really had a firm grounding. In the last 15 years, Bharti Airtel managed to increase its market cap 30-fold and its debt also 30-fold during the same period. Profits are almost where they were 15 years ago. In short, Indian telcos have managed to expand their market cap by holding government payouts and binging on debt.
Time to be pragmatic
In a nutshell, the government and the Supreme Court are absolutely correct in demanding that the telecom companies pay up the AGC charges with all dues outstanding. But pragmatism dictates otherwise. Bharti is just about making profits and Vodafone is accumulating losses of nearly Rs.5,000 crore each quarter. There is no way these telcos can pay up the amount at this point of time. The only outcome would be that the telcos would default on their other debt obligations. Now, these are really huge! For example, Bharti has total debt to the tune of Rs.123,000 crore while Vodafone Idea has outstanding debt of Rs.149,000 crore. Bharti owes 53% of this debt to the government and Vodafone owes 79% of this debt to the government. Pushing them to default will only exacerbate the situation. At the end of the day, Indian telecom still needs healthy competition to Jio!
Here is a middle path!
The telecom companies are not exactly disputing these dues, although they have sought more time. Telcos want the government to waive the penalty and the interest cost, which should be fine, if they can assure on the full payment of the core dues. The priority must be to revive the telecom sector and pushing them to default does not add any value. After all, a healthy telecom sector also needs healthy competition! ©