In May 2025, the Supreme Court dismissed a key petition by telecom service providers, Bharti Airtel (Airtel), Tata Communications and Vodafone Idea (Vi), seeking a waiver of interest, penalties and interest on penalties on their respective adjusted gross revenue (AGR) dues.
The ruling ends the telcos’ attempts to challenge the interest and penalty components of their AGR dues. The two-member bench, however, left the door open for a government-led bailout or intervention, stating, “If the government wants to help you (the petitioners), we are not coming in your way.”
While a favourable verdict would have helped Airtel and Tata reduce their respective debt service obligations, those two groups have the financial resources needed to cope with the unsupportive verdict. But the dismissal may be lethal for Vi. It is challenging for the company to raise the resources to service its pending AGR dues without a massive bailout.
As of December 31, 2024, Vi’s bank debt stood at Rs 23.3 billion while its government dues relating to spectrum and AGR liabilities were at Rs 2.15 trillion, excluding interest. Under a 2021 relief package, large repayments were deferred until October 2025. The plea to the court sought a Rs 450 billion waiver on penalties and interest linked to its principal AGR liability of Rs 834 billion. To offer some colour, Bharti Airtel and Bharti Hexacom together sought relief on Rs 347.45 billion out of their total Rs 439.8 billion liability.
Following the verdict, Vi must raise over Rs 1.08 trillion over a six-year period, unless the government offers some relief. Vi needs to clear the arrears in six tranches, with the first tranche due by March 31, 2026. According to the company, there is no way it can generate enough internal resources to do so from operations alone, as it expects to generate only Rs 90 billion-Rs 98 billion in cash flows in FY 2026.
The company will need a massive capital infusion, or alternatively, the government will have to come up with yet another relief package, or outright forgive a large chunk of AGR dues. One way this may happen is if the Department of Telecommunications (DoT) files a modification plea in the Supreme Court to obtain a formal order to waive, say, 50 per cent of the interest and 100 per cent of the penalties and interest on penalties relating to AGR dues.
The government has already bailed out Vi more than once. Starting FY 2022, there was a moratorium on the payment of AGR and spectrum dues. In March 2025, the government also converted Rs 369.5 billion of spectrum arrears into equity, becoming the largest shareholder in Vi, with a 48.99 per cent stake. These arrears related to pre-2021 spectrum auctions.
Yet another debt-to-equity conversion would give the government a controlling stake by pushing its shareholding well above 50 per cent. It would also further dilute the promoters’ holdings, which are currently at 25.6 per cent. This has disturbing implications for market dynamics and reports suggest that the government is very reluctant to go down this route.
Another alternative would be to go to the National Company Law Tribunal for insolvency. This would disrupt 200 million subscribers and trigger job losses for 20,000 Vi employees. Not much would be recovered from insolvency proceedings. The primary assets – spectrum, subscribers and network infrastructure – are either lease based or readily transferable. Spectrum can be re-auctioned, subscribers can port to rival networks, and most physical assets are leased.
A bankruptcy would turn the private telecom services market in India into a duopoly between Reliance Jio and Bharti Airtel and the reduction of competition would have broad negative implications for market dynamics and consumer choice. In policy terms, it is clear that the government would like to maintain the current 3+1 market structure where private operators Airtel, Jio and Vi continue to run services along with the 100 per cent PSU BSNL (plus MTNL) as the fourth player.
The reluctance to let Vi fail stems from both economic concerns and political considerations. A bankruptcy would damage India’s reputation as a business-friendly destination, hurt the banking sector and, perhaps, trigger public backlash if telecom services are disrupted. However, critics may argue that Vi is being unfairly favoured if it is bailed out again. Reliance Communications was allowed to fail, for example.
Other options for the government include extending the moratorium and kicking the problem further down the road in the hope that Vi would get time to raise the necessary funding. The government could also extend the repayment period, cutting the quantum of each tranche.
Vi offered projections of its likely cash flows from operations until FY 2031 when it asked for the debt-to-equity conversion, and analysts believe those are credible. Assuming there is no relief from the government, Vi’s cash reserves would be depleted by March 2026. So, the clock is ticking.
Between March 2024 and February 2025, the joint venture between India’s Aditya Birla Group and the UK’s Vodafone Group PLC raised around Rs 260 billion via equity, including Rs 40 billion from vendors. This included an infusion of Rs 19.8 billion from the promoters in December 2024 and a Rs 180 billion follow-on public offering in April, where GQG Capital subscribed to 26 per cent of anchor allocation. Vi will also likely receive another Rs 64 billion in equity funding from Vodafone PLC as an indemnity payment.
But it needs to find additional capital over and above this, which the promoters are unable to commit. Hence, Vi must find lenders willing to put together a refinance package for Vi. Vi would need to raise at least Rs 250 billion in loans from banks and financial institutions to tide things over. The company’s board has approved raising a further Rs 200 billion through equity or debt, for which the telco is in discussions with potential financiers, but this is hard given the huge debt burden.
An analysis by the financial service provider IIFL noted, “If the government waives interest, penalties and interest on penalties, our estimates suggest that Vodafone Idea’s annual cash payouts would decline by approximately $1.17 billion. Further, if the AGR payment deadline is extended from FY 2031 to FY 2051 (by 20 years more), the annual cash outflows for Vi between FY 2026 and FY 2031 could fall by $1.13 billion.”
A government waiver on AGR interest, penalties, and interest on penalties could, therefore, be pivotal for Vi to secure bank financing. Moreover, it is not only about debt servicing. Vi also needs substantial capital to invest in network expansion to stay competitive and retain its subscribers.
As of now, the AGR dues amount to six annual payments of Rs 180.64 billion each. One option that is being discussed is lengthening the period to 20 years (or more), with annual payments dropping to around Rs 55 billion-Rs 60 billion as a result. This may still not be enough, given Vi’s cash flows.
At the end of March 2025, Vi’s cash and bank balances totalled Rs 99 billion. In the January-March 2025 quarter (Q4 FY 2025), Vi reported a net loss of Rs 71.66 billion, more than the Rs 66.09 billion loss it reported in October-December 2024 (Q3 FY 2025). In FY 2025 as a whole, the company reported Rs 434.5 billion as revenue from operations, with Rs 245 billion in finance costs (mainly interest payments) and Rs 220 billion in depreciation and amortisation charges with a net loss of Rs 274 billion. The company would be operationally profitable in terms of earnings before interest, taxes, depreciation and amortisation. However, it only had operating cash flows of Rs 93 billion and that is just half of what it must pay as AGR dues by March 31, 2026.
“The ability to continue as a going concern is dependent on support from DoT on the AGR matter, successfully arranging funding and generation of cash flows from its operations that it needs to settle its liabilities as they fall due,” the auditor, S.R. Batliboi and Associates, noted.
Projections indicate that if Vi is asked to pay the full Rs 180.64 billion installment due by the end of FY 2026, it would not be able to meet the next payment in March 2027. Even if annual installments are reduced to Rs 60 billion by extending the payment period, it may still be incapable of servicing debt beyond 2028-29.
If there is a bailout – and that’s a big if – with a decision to waive the interest on unpaid AGR dues, penalty and interest on penalty, Vi could find it easier to raise debt, not only to service residual debt but also to invest in network expansions to maintain a competitive position. Vi needs to invest Rs 500 billion-Rs 550 billion in capex through till FY 2028, mainly in 4G modernisation and 5G roll-outs, which are crucial to bolster its networks.
This is an existential crisis for Vi. It also presents a very tricky problem for the government given the wider implications. There are no perfect solutions. Policymakers will need to respond with pragmatism and weigh all the economic, political and geopolitical implications to identify the path of least harm.
Devangshu Datta
