Impact of SC verdict (AGR Dues) on Telecom Stocks
3 min readIntroduction:
AGR is a fee-sharing mechanism between the government and the telcos who shifted to the ‘revenue-sharing fee’ model in 1999, from the ‘fixed license fee’ model. In this course, telcos are supposed to share a percentage of AGR with the government. On the verdict of 2019, the telecom players like Vodafone-Idea (now Vi), Airtel, and even Tata have sought for correction in the AGR dues. Let me know more about this AGR dues in detail and what is the current update.
Why the dispute?
The dispute between the telcos and the government has been mainly on the definition of AGR. The two sides were locked in a legal battle over the definition of AGR for more than a decade. While the government says that AGR includes all revenues from both telecom as well as non-telecom services, the operators suggest that it should include only the revenue from core services. On October 24, 2019, the top court widened the definition of AGR to include the government’s view.
The October 2019 Verdict
In a massive setback for telecom companies, the SC rejected their definition of AGR and exposed the firms to demands by the Department of Telecom (DoT) of more than Rs 1 lakh crore. The court ordered to include all revenues, except for termination fees and roaming charges, as a part of the AGR.
Where do the dues stand now?
The total amount due as per the Department of Telecom’s submission to the Supreme Court is Rs 119,292 crore. So far telecom players have paid Rs 25,896 crore. The balance payment of Rs 93,520 crore remains due.
Out of its total dues of Rs 43,980 crore, Bharti Airtel has paid Rs 18,004 crore so far while Rs 25,976 crore is remaining. Vodafone Idea’s dues are the highest at Rs 58,254 crore of which the company has paid Rs 6,354 crore and the balance due is Rs 51,400 crore.
The dues of Tata Teleservices stand at Rs 16,798 crore of which it has paid Rs 4,197 crore, while Jio’s dues are at Rs 194.7 crore all of which have already been paid by the company.
The DoT in March had moved the Supreme Court proposing staggered payment over 20 years for telecom companies to pay the dues as it believes immediate payment could result in possible bankruptcies and could potentially hurt crores of customers.
In September last year, the Supreme Court had permitted the telecom companies to pay off the AGR dues in a staggered manner over 10 annual installments.
Latest Verdict:
On the hearing of 23rd July 2021 on corrections in the AGR amounts, the honorable Supreme Court refused to re-calculate the same.
Impact on Telecom Stocks:
- The stock of Vodafone Idea hit the lower circuit on Friday twice as a reaction to the ruling of the Supreme Court which dismissed the application of Telecom Companies for re-calculation of AGR dues.
- Along with Vodafone Idea, Airtel also witnessed a drop in the share price initially but recovered later on.
- From a longer-term perspective, there are many uncertainties associated with the Vodafone Idea. The company is currently planning to raise capital funds and looking for some strategic investors.
- On the other hand, Airtel has already been ready with the backup plans in the form of provisioning and other required things.
- This decision will also lead to the presence of a duopoly in the Telecom Market in India between Airtel and Jio as Vodafone Idea seems to be in survival mode.
- Further, it will result in loss of market share and new customers by Vodafone Idea which will be gained by the other 2 players in the industry.
Conclusion:
This decision by the Supreme Court on the refusal of application of re-assessment of AGR dues by the Vodafone Idea and Idea is major negative news for Vodafone Idea, and nonetheless for Airtel too. But at present times, Bharti Airtel looks good with this situation too due to its provisioning, increasing revenue, gaining market share and subscribers. Do proper research and studies before making any investment decisions.