New Delhi: The government’s win of a long-contested dispute over telecom fees could end up a Pyrrhic victory, as the billions of dollars in levies now owed are seen as burdens too big to bear for two of the country’s three main carriers.
Vodafone Idea Ltd, India’s biggest carrier by user numbers, is widely regarded as most on the ropes, with parent Vodafone Group calling the situation “critical” after the unit was saddled with about $3.9 billion in fresh payments due. That is the biggest portion of the $13 billion incurred by the sector after India’s Supreme Court last month sided with the government in how spectrum usage and license fees are calculated.
Bharti Airtel, the No. 3 provider which must pay roughly $3 billion under the ruling, has also flagged distress, saying the decision casts much doubt on “its ability to continue as a going concern.”
To industry executives and analysts alike, there’s only one solution for the sector which was even before the current crisis debt-ridden and battered by a brutal price war: significant government financial support. Hopes have been raised after the government deferred upcoming spectrum payments for the next two financial years until March 2022. Finance Minister Nirmala Sitharaman also said this month that relief is under consideration although no final call had been made.
“If the government does provide some measures, there is still some chance for (Vodafone Idea) to continue as a going concern. It all depends on what kind of relief measures the company will get,” said Umesh Mehta, head of research at Samco Securities.
He said he expects the company to survive as it is in the government’s interest to have three main players to ensure sufficient competition in the sector.
Vodafone Idea and Bharti Airtel did not respond to requests for comment. Vodafone Group declined to comment.
ENTREATIES MADE
Vodafone Idea this month booked a $7 billion quarterly loss, the biggest in Indian corporate history, in large part due to provisions for payments owed. Parent Vodafone has also laid its case on the line: writing down the value of its 44% stake in the unit to zero and vowing it will not commit more equity to India.
In addition to the two-year moratorium, Vodafone Idea and Bharti Airtel are asking the government for cuts to license fees and taxes, as well as waivers for interest and penalties. Mobile carriers have also petitioned the Supreme Court to review its ruling, although lawyers say chances of that happening are slim.
But even if the government obliges with generous financial waivers, analysts note Vodafone Idea would still be deeply troubled.
