A royal mess: on the turmoil in telecom industry

Only pragmatism and prudence can lift the telecom industry from its current troubles

February 18, 2020 12:02 am | Updated November 28, 2021 12:29 pm IST

It cannot possibly get messier than this. The telecom industry is in turmoil unable to pay up its dues as per the Supreme Court verdict on adjusted gross revenues delivered in October last; the Court is aghast that its order is not being complied with; and then there is the government torn between revenue considerations, the need to uphold sanctity of contracts, and ensuring that one of the players does not go under in the process of honouring the verdict. Faced with the wrath of the Court , Bharti Airtel paid ₹10,000 crore on Monday with the promise of paying the rest before mid-March when the court will hear the case next. Vodafone Idea, the one hit the most by the judgment, on Monday sought more time to pay up but the Court was in no mood to humour the company and refused to hear the plea. The company eventually paid ₹2,500 crore by the evening. The two companies, as indeed the others in the industry, have only themselves to blame for the predicament that they find themselves in now. They could have paid up their annual dues over the years — which were not material in relation to their respective turnovers — under protest even as they litigated the case in the top court. That would have obviated the need to pay interest and penalties now which are higher than the actual dues. At the very least, they ought to have provided for the liability in their balance sheets as a contingency, which they failed to do.

While they have to pay the price for this now, what can be done to ensure that the blow is not fatal? If Vodafone shuts shop, not only will the industry be reduced to a duopoly, with all the attendant consequences for customers but it will also lead to loss of about 15,000 direct jobs and several thousand more indirect ones. Worse, the cascading effect will be felt across the economy as lenders face the consequences of the company going bankrupt — non performing assets will rise. Telecom equipment suppliers may also go down as their dues will not be paid. And what happens to the 212 million Vodafone subscribers? It is doubtful whether the other two players can absorb them all. The industry is critical to the government’s plans for a digital economy not to mention its revenues, including from the upcoming 5G spectrum auctions. The government has to, therefore, examine what it can do to save the situation without disrespecting the Court’s verdict. Legislation to offer a staggered payment schedule that ensures that the net present value of future payments is equal to the dues is one option experts are suggesting. There could be other options that can be considered in conjunction with the industry, including reducing the adjusted gross revenue-based licence fees and spectrum usage charges. Whatever route it chooses to soften the blow, the government will have to get the Court on its side at the next hearing on March 17. The need of the hour is pragmatism laced with prudence on all sides to clean up this royal mess.

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