AGR uncertainty ends

Telecom firms should charge more, improve service

The Supreme Court verdict on the terms of paying past dues linked to adjusted gross revenue (AGR) has brought to an end the uncertainty surrounding the 15-year-old telecom case, though a review petition is still an option. The judgment has come almost a year after the top court had upheld the government’s definition of AGR, and that meant a payout of Rs 1.47 trillion in dues by 15 telecom companies (many of which have shut down, sold out, or are in insolvency). On Tuesday, a Bench led by Justice Arun Mishra asked the telecom companies to pay 10 per cent of the AGR dues upfront before March 31, 2021, while staggering the remaining amount over a 10-year duration starting April 1, 2021.

While the verdict has offered a breather to the industry, the most stressed operator, Vodafone Idea (which had sought to pay the dues in at least 15 years of staggered payment), may still find the going tough because of its poor cash reserve situation and the stated position of Vodafone Plc that it would not put good money after bad in its Indian telecom venture. Even for debt-laden Bharti Airtel, the court relief may be temporary unless it takes measures to strengthen its balance sheet. Among the three current operators, Bharti Airtel owes the government Rs 43,780 crore in AGR dues, of which it has paid Rs 18,004 crore; Vodafone Idea has paid Rs 7,854 crore of its Rs 50,399 crore dues; and Reliance Jio has made the full payment of Rs 195 crore.

To keep Vodafone Idea a going concern and prevent the industry from becoming a monopoly or a duopoly, raising tariff is the only option. With the entry of Reliance Jio a few years ago, deep discounts have ruled the industry with tariffs plunging to new lows and telecom companies running into deep losses. The contrast is striking: While India has a monthly tariff of $2 for 16 GB data, in some other markets like the US or Europe it is $50-60. It’s encouraging that the industry is now going off the beaten track and is planning to increase tariffs, which are now among the lowest in the world. Bharti Airtel’s Sunil Bharti Mittal recently argued that average revenue per user (ARPU) should cross Rs 200 and ideally touch Rs 250 in the next six months on digital content consumption. ARPU, which denotes revenue generated per user in a month for a telecom company, ranges between Rs 110 and Rs 160 in the country. While Bharti Airtel’s ARPU in the June 2020 quarter was Rs 157 a month, Vodafone Idea’s was Rs 114, and Reliance Jio’s Rs 140.30. Although in their Q1 financial results, both Bharti and Jio showed recovery in ARPU, Vodafone Idea experienced a fall.

At the same time, telecom operators will need to step up their efforts to cater to customers. Call drops and poor data connection have for long been a pain point for them. Operators must invest to ensure robust services. The spectrum auction across several bands, including 5G, will be an opportunity for the telcos to show their intent, but they should go beyond that to do what it takes to satisfy subscribers.