AGR case make-or-break point for Airtel, Reliance Jio and Vodafone Idea, here's why

From a test match till last year to a one-day contest early this year and now Twenty20, the Adjusted Gross Revenue (AGR) case has been changing formats really quick. But finally it seems that the result of this 14-year-old match would be out soon.

On Monday, the Supreme Court bench led by Justice Arun Mishra reserved its judgement on the AGR matter. The bench has outlined three areas on which it would pass the judgement, and the next few days, particularly before September 2 (the day Justice Mishra is retiring), are going to be pretty intense for the entire sector.

Today, the SC bench decided to increase the scope of its judgement from what industry watchers once saw merely restricted to giving relief to incumbent telcos (Vodafone Idea and Bharti Airtel). The judgment would now include the long-pending demand of the Department of Telecommunications (DoT), and the telcos, to stagger the AGR payments of incumbents over 20 years so that it will be easier for them to pay in instalments as against a lump sum payment. So far, out of 15 affected telcos, five have paid just a fraction - about Rs 30,254 crore - of the AGR dues to DoT out of the total demand of Rs 1.69 lakh crore.

The second big decision on which the court has reserved its judgment is whether telcos can transfer the spectrum rights, and sell it under Insolvency and Bankruptcy Code (IBC). This mostly applies to three operators that have become insolvent, namely Reliance Communications, Aircel and Videocon Telecom. The SC has been against the idea of spectrum sale under the resolution plan of the insolvent telcos, especially because the sale will not result in the payment of AGR dues since all the money will go to the financial creditors like banks.

This also echoes with the DoT's stand. DoT has recently opposed the resolution plan of Aircel and RCom on similar grounds. Nevertheless, the telcos maintain the right to transfer the spectrum as part of their license agreement with DoT, and they can sell it if DoT gives its nod. In fact, Harish Salve, who represents Reliance Jio and RCom's committee of creditors (CoC), reportedly told the court that it's not for them to decide on the sale of spectrum issue as DoT will take a decision at an appropriate stage.

Telcos also argue that the spectrum is used as collateral for taking bank loans, and since it's shown as an asset in their books, they have the legit right to transfer its use to anyone (subject to DoT's permission).

The most important (and third) part of the SC's judgement will ascertain the AGR liability of the telcos - Jio and Airtel - for the spectrum deals that they have done with the insolvent telcos. Jio, for instance, went into a spectrum trading and sharing agreement with RCom in 2016 where Jio had bought airwaves in the 800 megahertz band from RCom in 13 circles in addition to sharing spectrum in the same band in some other circles. Airtel, on the other hand, had spectrum sharing and trading agreements with Aircel and Videocon Telecom.

The court has thus far maintained that past AGR dues must be cleared before the sale of spectrum, and if the insolvent telcos are not in a position to pay, then Airtel and Jio will have to clear the dues. As per DoT's assessments, Aircel Group of Companies owes Rs 12,389 crore, Videocon Telecom owes Rs 1,376 crore and RCom (including its arm Reliance Telecom) owes Rs 25,199.27 crore. RCom has paid just Rs 3.96 crore, others haven't paid anything. In the case of Aircel and RCom, the National Company Law Tribunal (NCLT) has reportedly approved the resolution plan submitted by Delhi-based UV Asset Reconstruction Company Limited (UVARCL).

Right now, the biggest concern for telcos like Airtel and Jio is what would happen if SC doesn't allow spectrum sale under IBC, or if it allows spectrum sale but asks the resolution applicant (UVARCL) to clear DoT's AGR dues first. In both the cases, a fight between banks and Airtel and Jio is inevitable.

"If the SC decision goes against the telcos, it could start a tiff between the operating telcos and CoC on who will take over the AGR liability burden, and by what proportion. It would be a messier situation for telcos if SC disallows spectrum sale as well," says a telecom consultant.

The stand of SC on both the issues (spectrum sale and AGR liabilities) has been consistently against the telcos. It would be a miraculous escape for telcos if the court decides otherwise.

ALSO READ: AGR issue: SC reserves order on spectrum sale by insolvent telcos

ALSO READ: AGR case: Cancel license, spectrum if telcos' dues are being wiped out, SC to govt

ALSO READ: Supreme Court puts onus of AGR dues of ailing telcos on spectrum users