Adjusted gross revenue (AGR) dues case against the telco came to an end earlier this year when the Supreme Court (SC) of India finally sided with the government. The SC had ruled in favour of DoT and asked the telcos to pay the dues within the next 10 years out of which 10% of the dues have to be paid before March 31, 2021. Even though this decision brought legal relief to the telcos, it isn’t enough to help them sustain in the industry. A tariff hike is in order for the telcos to be able to grow substantially. More on the story ahead.
Tariff Hike Needed for ARPU of Telcos to Grow
As per an ET Telecom report, SP Kochhar, Director General of Cellular Operators Association of India (COAI) said, “The order came as a sort of a conclusion and closure for an issue that was long pending, so the industry is relieved from the perspective of its legal closure. However, it can be termed as a partial relief only.”
Kochhar expressed that for the long-term growth of the industry, a tariff hike is necessary. After the verdict, Vodafone Idea (Vi) had dues of over Rs 58,254 crore, Tata Teleservices of Rs 16,798 crore, Bharti Airtel of Rs 43,980 crore, Bharat Sanchar Nigam Limited (BSNL) of Rs 5,835.85 crore, and Mahanagar Telephone Nigam Limited (MTNL) of Rs 4,352.09 crore.
Vi recently got more relief on its victory in the arbitration proceedings against India on the issue of tax liability of Rs 20,000 crore. However, the telco still faced a net loss of Rs 7,218 crore in the Q2 FY20-21. Vi Chief Executive Officer, Ravinder Takkar has said that the company won’t shy away from being the first one to increase the tariff rates.
The advantage for the industry which tariff hike undertook last year had created got nullified when the AGR dues liability came upon the telcos. The return on capital employed (ROCE) has been pulled down to 4%-5% for the industry. Thus the long-term growth of the telecom sector heavily depends on higher average revenue per user (ARPU) which only tariff hikes can create.
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