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Budget 2021

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AGR verdict impact: Vodafone, Airtel may hike tariffs to stay afloat, say experts

The Supreme Court directed telecom companies to pay 10 percent of the AGR dues by March 31, 2021.

September 02, 2020 / 09:13 PM IST

The Supreme Court verdict on the AGR case is likely to affect consumers as telcos are likely to hike tariffs for voice and data services. Consumers are facing imminent tariff hikes by a minimum of 10 percent with Bharti Airtel and Vodafone Idea required to pay 10 percent of their AGR dues within the next seven months.

An SC bench led by Justice Arun Mishra on September 1 allowed 10 years for staggered payment of adjusted gross revenue (AGR) dues by telecom companies. The top court also directed telecom companies to pay 10 percent of the AGR dues by March 31, 2021.

According to brokerage firm Jefferies, Bharti Airtel will have to pay around Rs 2,600 crore and Vodafone Idea Rs 5,000 crore by March which, requires average revenue per user (ARPU) to increase by 10 percent and 27 percent respectively, The Economic Times reported.

Also read: AGR case verdict: 8 key takeaways from Supreme Court's order

"In our view, another round of minimum 10 percent tariff hike is likely in the near term," Jefferies said, as per the report.

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Jefferies further said that Vodafone Idea may require additional support from the government in the form of a further two-year moratorium on deferred spectrum liabilities to remain solvent beyond FY23.

Sanjay Kapoor, Entrepreneur & TMT Advisor said that the SC judgment has highlighted the need for tariff hike in the near term.

Also read: AGR verdict puts Bharti Airtel back in focus, Vodafone Idea to struggle: Rusmik Oza

"Keeping spectrum costs and other investments aside, service providers need an ARPU of at least $3-4 in the near future for the capital expenditure required to provide for the surge in data usage. Therefore, there should be a significant tariff hike in the next quarter," Kapoor was quoted as saying.

Motilal Oswal in its report said that a price hike is imminent and with the SC verdict noise for a tariff hike would certainly grow.

"With this verdict, the balance sheets of both Vodafone India and Bharti Airtel would weaken. Vodafone Idea would require a massive Rs 110 cumulative ARPU increase in FY22 and FY23 to manage its operations sustainably. We believe that with the Smartphone market largely settled and prevailing low ARPUs, there is a strong case for a price hike. However, given the challenging economic environment, we see a limited possibility on an immediate basis," Oswal said.
Moneycontrol News
first published: Sep 2, 2020 09:06 am
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