Airtel and Vodafone-Idea get a devastating blow from India's Supreme Court
- The highest court of the country just upheld the Indian government's plea to demand huge sums of disputed levies from the telecom companies.
- Airtel and Vodafone Idea may have to shell out ₹50,000 crore together to the Indian government after the latest Supreme Court.
- The Department of Telecommunications believes that a whole lot of other earnings from dividends and handset sales should also be a part of it, while the companies contended that the levy should only be on the core telecom services revenue.
AdvertisementAirtel and Vodafone Idea may have to shell out ₹50,000 crore together to the Indian government after the latest Supreme Court order that has upheld the demand for adjusted gross revenue (AGR) from Department of Telecom.
Airtel and Vodafone-Idea's stock prices fall sharply. The latter losing nearly a fifth of their value in trade soon after the
What is the AGR dispute?
This is a dispute on how much licence and other fees has to be paid on the spectrum that telecom companies own. While telecom companies believe that they should pay the fees based on their earnings from the core telecom business only. But the Department of Telecommunications believes that a whole lot of other earnings from dividends and handset sales should also be a part of it.
This would expand the scope of AGR and since it is an old dispute, it can be as high as ₹92,000 crore that all telcos have to pay up.
The incumbent telecom companies of Vodafone-Idea and Bharti Airtel will have to pay the highest chunk of around ₹50,000 crore. The merged entity of Vodafone Idea has already borne the most brunt of the decision as its stock fell by 23% as soon as the news broke.
Though Reliance Industries share price is not directly affected, if the government chooses to charge extra fees on handset sales, it will also affect Jio’s strategy going forward. It is known to sell handsets in large number of basic level handsets as it adds rural subscribers into its fold. It will affect the already fragile margins of the company.
However, the financial muscle of Airtel and Vodafone-Idea will be much weaker after they pay up these dues, and their weakness directly and indirectly be to Reliance Jio's advantage.
More importantly, this will also reduce the amount of money available with these companies to bid for the upcoming 5G spectrum auction.
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