Telecom companies may soon have to raise data and call tariffs to earn more revenue to offset losses from pending AGR payments, which now fall due after the Supreme Court verdict. The Supreme Court has given Bharti Airtel, Voda-Idea and Mukesh Ambani’s Reliance Jio to pay 90% of their AGR dues in ten years starting fiscal year 2022-23. Consequently, telecom companies may need to get more money out of their customers’ pockets in a country where data and call rates are among the cheapest.
“Telcos will require ARPU (average revenue per user) increase of 10-27% to offset this, making tariff hikes imminent,” Jefferies said in a research note released on Tuesday after the Supreme Court verdict.
Telecom companies, which have been in a tight spot for some years now after Reliance Jio’s entry in the sector, have been struggling to keep their subscribers base. That Jio’s entry also led to dirt cheap data rates was no help either. Further, telecom companies will be more cash strapped due to AGR issues. With the AGR dues, Bharti Airtel and Vodafone-Idea will see a cash outflow of 22% and 111% in their EBITDA respectively, according to the report. This may also result in the sector becoming a duopoly soon between Bharti Airtel and Reliance Jio.
SC verdict EXPLAINED
This week, the Supreme Court finally settled the AGR dues issue, ordering telecom companies to pay 10% of the outstanding AGR liabilities by 31 March 2021; the remaining dues can be paid in 10-year installments starting 7 February 2022. The Supreme Court has also reiterated that no revaluation of the AGR dues will be allowed in future. With the verdict, Vodafone Idea will be required to pay Rs 5,000 crore upfront possibly by FY22. After this, it will have to pay Rs 6,800 crore annually beginning FY23.
Vodafone-Idea, which is already struggling with a slimming subscriber base, is expected to be most impacted due to AGR dues. As of now, Bharti Airtel is expected to pay Rs 2,600 crore upfront, and an annual payment of Rs 3,500 crore thereafter.