Why Are Reliance Jio, Airtel & COAI Fighting Over Telecom Debt?

Over the past few days, telecom giants Reliance Jio, Airtel and operator body Cellular Operator Association of India (COAI) have been fighting in public over issues related to spectrum dues and adjusted gross revenue (AGR) levied on the telcos after a recent judgement from the Supreme Court. This has a direct impact on the how the sector grows in the coming years and whether India is staring at the possibility of a duopoly in the telecom sector. We take an in-depth look at the situation that has caused this tension and where it is headed.The issue was first raised back in 2002, when telcos were contesting the use and definition of AGR by the Department of Telecom (DoT), which said that higher the AGR of a telco, the higher the payments the companies have to make to the DoT.AGR is the basis for calculating the spectrum usage charges and license fees paid by telecom companies to the DoT.The DoT’s definition of AGR was first challenged in 2005 by the Cellular Operators Association of India (COAI). A number of cases were filed across the country, which saw conflicting decisions. But on 24 October 2019, the Supreme Court decided to end the case once and for all, giving its judgment in favour of the DoT, which came as a rude shock to the telcos.Why is that? The Supreme Court’s ruling means that AGR now includes all revenues of the telcos, including rent, handset sales and profits from sales of assets and scrap.This has resulted in a pile-up of debt for Airtel and Vodafone Idea, forcing both the telcos to pay up to Rs 80,000 crore in the next three months. It’s worth noting that the list of telcos from the judgement includes the now defunct Reliance Communications, which has to pay around Rs 22,000 crore, but is currently in the midst of insolvency proceedings.The overall payout by telcos could rise to an estimated Rs 1.23 lakh crore once spectrum usage charges (SUC) linked to the AGR are taken into account.With the telecom sector already struggling under a huge pile of debt, the timing of the AGR judgement is anything but good news for Airtel and Vodafone Idea.Out of the three existing telcos, Jio is the least affected by the AGR judgement, as the company didn’t start its commercial operations until 2016.Coincidentally, it was shortly before the launch of Reliance Jio that the government made some changes to regulations in the telecom sector which played out in favour of the new entrant.Given this background, Jio believes that neither of the telcos should be given an easy way out.Even with the telecom sector facing a big challenge to grow, amidst falling data revenue, thanks to competition with Jio, both Airtel and Vodafone Idea have repeatedly mentioned that rising debt is most likely going to affect their future business decisions. But Jio is having none of it.Last week, Reliance Jio wrote to Ravi Shankar Prasad, Union Minister for Communications, saying firms that have been ordered by the Supreme Court to pay past statutory dues have “sufficient” financial capacity to clear their liabilities.Responding to the concerns of the ailing telcos, COAI urged the newly constituted panel of secretaries to prescribe immediate relief measures to address the AGR issue first, given the "urgency of the situation".But things took a dramatic twist last week, after Jio publicly lashed out at COAI for seeking a government bailout for the other two telcos, without even considering its comment on the subject.Jio is also part of the COAI body, and through that letter to the Ministry, the telco said the body was “blackmailing to extract relief from the government after all legal recourse had expired.”Jio said it “strongly disagrees with COAI’s submission that in absence of immediate relief by the government the telecom sector will collapse and there would be an unprecedented crisis in the sector as two of the three private operators will be facing extreme financial crisis.”According to Jio, as mentioned in the letter, “failure of two operators, even in the unlikely event of it actually happening, will not have an impact on the sector dynamics with the existence of vibrant competition.”The telco also accused “Airtel and Vodafone Idea of choosing to offer below-cost tariffs to users, even when they highlight so-called financial stress, especially when there is no pressure on them to continue with these data prices.”Even on Sunday, Jio wrote another detailed letter to Ravi Shankar Prasad, Union Minister for Communications, reiterating that both Airtel and Vodafone Idea Limited (VIL) have the market capital to pay their dues in the next three months.It also pointed out that “the government does not have the option of going against the Supreme Court judgement and provide any of the relief sought by COAI.”Airtel and Vodafone Idea among others have been given three months’ time to pay these dues. This is most likely going to affect the scope for auction of 5G spectrum in the country, which has already been delayed much beyond its earlier set deadline.Analysts at Fitch Ratings have also mentioned that “any immediate payment of dues by telcos following the Supreme Court order on adjusted gross revenue (AGR) would leave them with limited financial flexibility to bid for 5G spectrum thus delaying its auction.”To its credit, VIL has officially said that it is neither looking to get a cut on the dues, nor expected to exit the country anytime soon, as the rumour mill has started suggesting.“There has been reportage in some media alleging that Vodafone Idea has approached its lenders for debt recast. We categorically deny and dismiss this as baseless and factually incorrect. We have not made any request for debt recast to any lender or asked for reworking of payment terms. We continue to pay all our debts as and when these fall due.”Vodafone Idea statementUnless they find legal recourse, Airtel and VIL will have to abide by the Supreme Court’s judgement and for that, they’ll have to find other means to fund the payment of dues.

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Why Are Reliance Jio, Airtel & COAI Fighting Over Telecom Debt?

Reliance Jio, COAI and two other telcos have been entangled in a battle that involves debt of over Rs 90,000 crore.