Bharti Airtel and Vodafone-Idea may see relief from AGR dues but it might not be enough to make them bid for 5G airwaves

• The budgetary estimates indicate that Bharti Airtel and Vodafone-Idea may only have to make principal payments of their AGR dues this financial year.
  
• Despite the relief, analysts feel it may not be enough for the telecom giants to participate in the 5G spectrum auction.
  
• The relief of AGR dues is especially good news for Vodafone that owes over half a trillion dollars.
  

The Union Budget 2020 indicates that the worst might be over for Bharti Airtel and Vodafone-Idea. According to analysts, the telecom giants may only have to pay the principal amounts of their adjusted gross revenue (AGR) dues - at least this financial year.

"Budgetary estimates put ₹1,330 billion in receipts from the communication services, which includes telecom, in FY21 versus ₹590 billion in FY20," said a report by Axis Capital. It means that the massive penalties and interest that the department has been demanding - might be relaxed.

In spite of the relaxation, all telecom players — Reliance Jio, Airtel and Vodafone are on the edge. They have lost a lot of equity value in addition to the stress of debt after the Supreme Court backed the department’s definition of AGR dues that includes non-telecom revenues as well.

This is what makes telecom operators think twice before participating in the 5G spectrum auction. The Axis Capital report says that the operators’ balance sheets are already so stressed that even paying fewer AGR dues might not be enough to provide them with the capital they need to buy airwaves.

"Participation of the incumbents remains in question given their stressed balance sheets," said the report.

Telecom operators may only have to make a principal payment of AGR dues to the government
If the relief part does indeed come true, it might help Vodafone Idea - survive. It might owe the government ₹100 billion this year while Airtel will only have to pay ₹87 billion. In comparison, the former owes the government a grand total of ₹530.4 billion and the latter owes ₹355 billion in AGR dues.

Telecom operator	AGR dues without relief	AGR dues with relief
Bharti Airtel	₹ 355 billion	₹ 80 billion
Vodafone-Idea	₹ 530 billion	₹ 100 billion
Reliance Jio	₹ 211 billion	₹ 30 billion

^{(Source: Axis Capital)}

"Of ₹590 billion expected in FY20 — assuming ₹210 billion in license and ₹210 billion spectrum-related payments — the AGR liability collection works out to ₹170 bn, which is the principal portion only," said the report.

The matter is currently under judicial consideration but the government has chosen to disclude the penalty, interest and any interest on penalty in its calculations of the budget. Analysts expect the matter to be transferred to the Department of Telecommunications (DoT).

Good news for Vodafone
As rumours of Vodafone leaving the market have been making the rounds, panicked users are already porting out. If Vodafone were to go belly up, its 336 million subscribers will be up for grabs.

However, analysts now think there’s hope since the budget indicates that UK-based operator may not have to shell out half a trillion dollars in one fell swoop. "We see the budget estimates to be positive for Vodafone-Idea, as it improves the business case for the company to remain a going concern," said the report by Axis Capital.

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