InvestorQ : What should Bharti and Vodafone now do after the government has refused to give them time beyond 3 months to pay up the AGR charges?
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What should Bharti and Vodafone now do after the government has refused to give them time beyond 3 months to pay up the AGR charges?

Answer
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2 years ago
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The one thing that Vodafone and Bharti must do immediately is not to aggravate the situation further by adding more legal angles to the telecom tangle. If you just go back a little bit, you will realize that the controversy over Adjusted Gross Revenue (AGR) of telecom companies is actually nearly 16 years old. The Supreme Court had recently passed an order asking the telcos to pay up the pending Rs.92,000 crore as AGR charges. Both Vodafone Idea and Bharti Airtel are filing a review petition in the court but they would do better not to aggravate the issue further. Already, the damage to their balance sheets is done in Q2 and they should look to compromise with the government and end the issue. Let us first understand what the AGR controversy is all about.

You will recall that just a few days back, in the aftermath of the Supreme Court order, Bharti Airtel and Vodafone wrote off big losses in the second quarter. Bharti reported a net loss of Rs.27,600 crore while the losses of Vodafone were closer to Rs.51,000 crore. If you break up these losses, the actual loss is only Rs.11,000 crore for Vodafone Idea and Rs.6,500 crore for Bharti Airtel. This was the amount that was payable in 2003. Over the last 16 years, the total liability of Bharti Airtel has swelled to Rs.25,000 crore inclusive of interest and penalty. In the case of Vodafone Idea the AGR has grown to Rs.44,000 crore including penalty and interest. They could have actually saved the embarrassment by paying that money back in 2003. All that Bharti and Vodafone should have done back then is to pay under protest. That would have saved them the interest and penalty and at that point of time, they could even afford to pay with their cash flows much easier. This would have prevented the amount from cascading to the current levels. Taking the matter to the court only worsened matters because the telecom companies had made an argument that was flawed in the first place.

What the government has offered currently hardly solves any of the problems for the telecom sector; especially for Bharti and Vodafone Idea. The government has offered moratorium on payment of spectrum usage charges (SUC) but is unwilling to concede on AGR charges. The telcos had sought waiver of penalty and interest component and had even sought a moratorium on the AGR payment considering the pressure that weak ARPUs had exerted on their profits. However, the government has asked the telcos to pay the AGR dues in 3 months flat. The government does realize there is a systemic risk in pushing the telcos too far into a corner. They have loans to banks in excess of Rs.220,000 crore and will most likely be open to a combination of postponement of some charges and waiver on some costs.

The onus is on Bharti and Vodafone to sort out amicably with the government, considering that they were wrong in the first place. Here is how they can sort it out amicably. Neither Bharti nor Vodafone can afford to aggravate the issue beyond a point. They should sit across the table with the government and work out a middle path. AGR is legitimately payable and both the telecom companies also now it. The good news is that ARPUs are finally bottoming out and business could look up. The time is ripe to focus on business and not get into legal tangles. The answer is to sit across the table with the DOT and sort it out.

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