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Explained: How govt’s relief package for telecom sector may help cash-strapped Vodafone Idea – India Today

The government is expected to come out with a comprehensive relief package to support the ailing telecom sector soon. The package will focus on telcos such as Vodafone Idea and Bharti Airtel that have to clear a huge amount as part of adjusted gross revenue (AGR) dues.

Of all the major companies operating in India’s telecom sector, Vodafone Idea Limited (VIL) is encountering the biggest financial crisis and needs urgent relief.

If the relief package is in line with expectations, it could provide $1 billion in annual relief for struggling VIL. A recent BNP Paribas client note suggested that a combination of reduced interest on deferred spectrum liability and an interest waiver on its AGR-related dues will provide an annual relief of nearly $1 billion to telcos, thus boosting its chances of survival.

BNP Paribas senior telecom analyst Kunal Vora said, “A 2 per cent rate cut on VIL’s deferred spectrum liability would lower its annual interest burden by Rs 2,100 crore and if the government foregoes the interest component on the telco’s AGR dues, it can result in an additional Rs 4,000-Rs 5,000 crore annual relief.”

Read | Relief package likely for stressed telecom sector: Here’s all you need to know

He went on to add that the government’s relief package needs to have a multi-pronged approach focused primarily on debt reduction. He also said that the company would need to back that up with strong tariff hikes that can boost VIL’s average revenue per user or ARPU by at least Rs 30 from current levels.

It may b noted that VIL’s ARPU fell 3 per cent sequentially to Rs 104 in the June quarter. A rise of Rs 30 in VIL’s ARPU could lead to Rs 9,000 crore in additional revenue.


The note went on to indicate that the loss-making telecom joint venture between UK’s Vodafone Plc and India’s Aditya Birla Group (ABG) would be able to cut its massive Rs 1.9 lakh crore deny if the government allows it to surrender unused spectrum in non-priority markets besides other measures that would help VIL reduce the net present value (NPV) of its outstanding liabilities.

The importance of saving VIL has already been specified by various research firms including credit rating agency Icra. It said that VIL’s survival is important as its absence would effectively reduce the private telecom space to a duopoly — a development that could ultimately harm consumers.

Vodafone Idea’s collapse would also hurt the government, banks, tower companies and thousands of employees working at the firm.

Also Read | Govt explores ways to extend AGR dues repayment timeline for ailing telcos