What next for Vodafone Idea after Supreme Court reversal?

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The Indian Supreme Court has this week rejected a plea for a recalculation of adjusted gross revenue (AGR) dues from a number of telecom companies – but the main focus of the news headlines after this decision has been on Vodafone Idea.

AGR is the basis on which the government collects spectrum and licence fees from operators. It’s by no means simple to calculate; hence Vodafone Idea’s argument that there were errors in the AGR demand calculation.

Vodafone Idea also reportedly wanted a reduction of the penalty to 50% of the total shortfall amount, and an adjustment of the interest rate on the penalty.

Outstanding dues of INR2.034 trillion (a barely believable US$24.3 billion) to the government as of March 31 this year would have been significantly eased with relief on the AGR (adjusted gross revenue) liability of INR703.2 billion (about US$8.4billion). Vodafone Idea also has debts to suppliers like Indus Towers to clear.

As India’s Economic Times news service points out, this problem has been brewing for a while, not least because of the effect on ARPU of intensive competition and price-cutting in the sector, notably from Jio.

But as well as having to deal with its debts Vodafone Idea has been losing subscribers. It has also been trying to find enough capital to upgrade 4G and roll out a 5G network, even as competitors Bharti Airtel and Reliance Jio forge ahead with 5G services.

On the upside, in February 2023 the government converted accrued interest of INR161.3 billion (about US$1.9 billion) in AGR dues into equity, giving it a 33% stake in Vodafone Idea. In addition various fundraising efforts have proved fairly successful and recent tariff increases have helped to boost the company’s balance sheet. There’s also been a moratorium on spectrum/AGR liabilities, but that ends in September 2025.

However, Vodafone Idea’s AGR dues could have been slashed by about 46% to around INR384 billion (US$4.6 billion) if it had received a positive response from the court. Would that alone have been enough? It's hard to say, but it would probably have had a better effect on fund-raising efforts than the adverse ruling Vodafone Idea now has to cope with.

It’s far too early for apocalyptic predictions of a huge subscriber base (some 210 million) set adrift if Vodafone Idea fails. However, the Economic Times won’t be alone in suggesting that the Indian government will again have to convert dues into equity and become an even bigger shareholder in the company.

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