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Last Updated : Jan 17, 2020 02:34 PM IST | Source: Moneycontrol.com

AGR review petition rejected: A big blow to telcos; Airtel and Jio to benefit

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Todays L/H

-  Vodafone Idea may not be able to survive if it doesn’t get relief from the government
- Airtel is well-prepared to pay its dues
- Reliance Jio and Airtel to benefit if Vodafone Idea doesn’t survive
- Government is expected to grant relief given the ramifications on telecom industry and economy


The Supreme Court judgement on Adjusted Gross Revenues (AGR) has huge ramifications for the well-being of two of the largest telecom operators in India: Bharti Airtel (Airtel) and Vodafone Idea (VIL). Both telcos had filed a review petition in the Supreme Court (SC) seeking relief from its earlier judgement which had asked them to pay up their dues to the government. But the SC’s rejection of the plea comes as a big blow. Now Airtel and VIL have to pay AGR dues amounting to Rs 34,300 crore and Rs 44,300 crore, respectively, to the government by January 23, 2020.

Impact on individual companies

The judgement has huge ramifications on the industry especially on VIL, which is on the verge of shutting shop. If that happens, then that may result into domino effect on banking sector as well  because VIL owes Rs 1.2 lakh crore. Further, the shutdown of the business may lead to job losses in large numbers. What is noteworthy is that both promoters (Aditya Birla Group and Vodafone Plc) have indicated that if they don’t get any relief then they would be forced to shut the business.

On the other hand, Airtel is well-prepared to pay its dues. It raised Rs 21,000 crore last week through the QIP (qualified institutional placement) and FCCB (foreign currency convertible bond) route. The remaining amount (Rs 13,000 crore), can be arranged through a bank loan without impacting balance sheet much (2.6 times debt to operating income after additional loans).

Impact on the industry: Jio and Airtel to benefit

If VIL shuts its shop that may lead to a duopolistic market which would be beneficial for Reliance Jio (Jio) and Airtel. Both Jio and Airtel would try to capture the subscriber base of VIL.

As per Motilal Oswal estimates, assuming subscriber share of 70:30 for RJio and Bharti, both these companies could see significant bump in earnings as highlighted in the table below.


In fact, as per the latest data released by Telecom Regulatory Authority of India (TRAI), Jio added 5.6 million subscribers in November, the highest among the three large players, making it the largest player in terms of market share (32.04 percent).  Airtel witnessed a nominal addition of 1.6 million whereas VIL lost 36.4 million.

Options for incumbents

We believe that the choice that telcos now have is to approach the government seeking relief. It will not be surprising to see the government chipping in given the huge implications that the shutting down of VIL would have on various stakeholders especially the beleaguered banking system and on employment. The government may bring in some respite through providing AGR liability payment extension, or by waving penalty amount or interest on penalty.

Disclaimer: Reliance Industries Ltd is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
First Published on Jan 17, 2020 01:43 pm