Putting an end to the adjusted gross revenue (AGR) issue, the Supreme Court, on September 1, 2020, granted telcos a 10-year timeline to pay their outstanding AGR dues. Telcos can now make payments in annual instalments till March 2031, after making a 10 per cent upfront payment by March 2021.

The Supreme Court judgement has allowed the aggrieved telcos, Bharti Airtel and Vodafone Idea Limited, some breathing space. In the near term, the staggered payment schedule will provide a much needed respite on the cash flow front. However, the industry is still trying to understand the likely impact of the 10-year schedule on telcos’ finances and on the broader industry structure, profitability and long-term prospects.

It is a known fact that telcos, particularly Vodafone Idea, along with the Department of Telecommunications, were pushing for a 15-20-year payment window, a timeline that was considered appropriate to clear dues without jeopardising current and future investment plans for network expansion and upgradation. As per a note by ICRA, post the judgement, the telcos will now have to make an upfront payment of Rs 90 billion by March 31, 2021. This will be followed by 10 annual instalments of around Rs 120 billion at an interest rate of 8 per cent, starting from February 2022 till February 2031.

Bharti Airtel has already paid Rs 144 billion, close to 40 per cent of its total dues. As per industry calculations, after an upfront payment of 10 per cent of the balance dues by March 31, 2021, the telco will have to pay about Rs 4.8 billion every quarter over a 10-year period. Meanwhile, Vodafone Idea has cleared Rs 78.5 billion of its outstanding dues so far. After an upfront payment, the telco will have to pay about Rs 11.28 billion in every instalment for 40 quarters.

Impact on telcos

Amongst the aggrieved telcos, Airtel has a stronger balance sheet and is expected to meet its payments though not without making a dent in its finances. The telco has raised $7 million-$8 million over the past three to four years, which will help meet the staggered payment schedule, but will leave little room for capex investments in networks. This will also impact its ability to fund its 5G plans as well as its participation in the upcoming spectrum auctions slated for 2021.

As for Vodafone Idea, the situation is extremely grim. The tide can turn in its favour only if it can bring in substantial cash into the business. Industry experts suggest that a capital infusion of $3 billion-$4 billion will be required over the next 12-18 months for the company to meet its AGR obligations and invest in network expansion to stay afloat.

Reliance Jio, which has no outstanding dues, is expected to rise further to become the market leader. In a non-rating action commentary, Fitch Ratings has observed that Jio and Bharti are likely to increase their combined revenue market share to 75-80 per cent from around 70 per cent in the next 12-18 months, at the expense of Vodafone Idea, which will likely lose 50 million-70 million subscribers in the next 12 months. “We believe Jio could snap up more than half of Vodafone Idea’s subscribers, with the balance going to Bharti,” notes Fitch.

Impact on debt

According to Ankit Jain, assistant vice president, Corporate Ratings, ICRA, “The proposed payment pattern adds to the burden on the industry, which is already saddled with elevated debt levels.” As per ICRA estimates, the sector debt stood at Rs 5 trillion as of March 31, 2019, which declined to Rs 4.4 trillion as of March 31, 2020 on the back of deleveraging measures by private operators during the year. However, in light of the recent judgement and the subsequent payout, the sector’s debt is now expected to rise to Rs 4.6 trillion by March 31, 2021.

In addition, in financial year 2023, the telcos will have to make payments for spectrum auction as well, which were deferred by the government in light of the sector’s delicate financial health. In 2019, the government had allowed postponing the auction instalments accrued during financial years 2021 and 2022 to 2023. According to Anupama Arora, vice president and sector head, Corporate Ratings, ICRA, the 10-year payment schedule for AGR dues has rendered the relief on auction payments ineffective and is likely to weigh heavily on the balance sheet of the weaker telecom operators, especially after the two-year moratorium period ends. “The annual instalments for the auction payments are to the tune of Rs 320 billion starting FY2023. This, along with Rs 120 billion annual instalment for AGR dues starting February 2022, has the potential to have a long-standing impact on the industry structure.”

Need for tariff revision

The tariff hikes announced in December 2019 have had a positive bearing on the industry’s ARPU as observed in the results reported by telcos during the quarter ended March 2020. Industry experts believe that industry ARPUs would have to further increase and that too substantially to improve telcos’ cash situation as well as to ensure the sector’s orderly growth. Jefferies in its research note has stated that telcos will require an ARPU increase of 10-27 per cent to offset the AGR impact.

Industry experts believe that in the next year and a half the industry will witness an upward tariff revision of 20-30 per cent. “We believe another tariff increase of at least 20 per cent is probable in the next 12 months. Vodafone Idea, whose ARPU is about 30 per cent lower than Bharti’s, may increase tariffs to improve its cash lows,” notes Fitch. Similarly, BofA Securities has suggested that VIL’s ARPU should reach Rs 200-Rs 240 over the next 18 months. “We expect the next round of tariff hike in the next one to three months,” adds the company.

Crisil also expects telcos to hike tariffs to recover their additional liabilities. The agency’s analysis indicates that the affected telcos need to hike their tariffs by Rs 20-Rs 30 per month to cover the AGR dues alone. Earlier, Airtel’s chairman Sunil Bharti Mittal had also stated that the industry monthly ARPU must touch Rs 300 to achieve a sustainable business model. Meanwhile, VIL’s CEO and MD, Ravinder Takkar, has stated that the current industry tariffs are unsustainable and they must be increased so that the industry reaches an ARPU level of Rs 200 in the near term and eventually hit the Rs 300 range.  Given an opportunity, even Jio will not be averse to hiking tariffs, alongside incumbents. Even for a telco with deep pockets, realising less than Rs 200 from an average consumption of 15 GB of data appears to be an unsustainable model in the long run.


As the old adage goes, something is better than nothing. Clearly, while a 15-20-year payment schedule would have been better appreciated by the industry, even a 10-year schedule provides some relief to the telcos. It has eased Airtel’s immediate cash position, while giving VIL some more time to put its house in order.

Industry experts believe that a duopoly, and in this case with one dominant player, is not in the best interest of the end consumer. At the same time, it is crucial that the financial health of the sector is restored, especially as big 5G investments are around the corner. The industry is saddled with high debt levels even as the capex requirements are moving north. Further, taxes and levies on telecom services have always been very high. It is thus important that the government takes a thorough relook at levies rationalisation and ensures that telecom resources like spectrum are more economically available. The telecom regulator and the government should also fix a floor price for the sector.

By Akanksha Mahajan Marwah