India’s $21 Billion Telecom War Comes Down to $2b

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India’s great telecom melee was bad enough as a brawl between service providers and the state, with operators complaining about the government’s outlandish claims on their past revenue. Now, consumers have jumped into the fray. A confusing three-cornered fight could lead to ugly outcomes: The country’s broken financial system would take a fresh hit; new 5G networks could be delayed; and the government’s annual revenue from the sector might get squeezed.

This week, New Delhi wants nearly Rs 1.5 lakh crore ($21 billion) in back license fees and spectrum usage charges, including penalties, interest and interest on unpaid interest. Before they lost the case in Supreme Court, the telcos maintained the government’s interpretation of what it was owed under the 1999 revenue-sharing agreement to be too broad and unfair because it included even their non-telecom revenue, such as interest and dividend income.

It’s a Pyrrhic victory for the government because not all the money it wants is coming. Of the 15 firms facing these long-contested demands, most have shut down, sold out or ended up insolvent. All eyes are now on Vodafone Idea Ltd., one of the three private-sector mobile services companies still standing. It has to pay Rs 53,000 crore by January 23, by government estimates. Even taking Vodafone Idea’s own calculation of the liability at Rs 44,200 crore, the loss-making carrier’s net debt soars to a life-threatening Rs 1.6 lakh crore. It may not be able to meet all its obligations.

The threat of a bankruptcy was real when I wrote about Vodafone Idea’s grim prospects in November. With the two large shareholders – Britain’s Vodafone Group Plc and billionaire Kumar Mangalam Birla – reluctant to throw more good money after bad, the equity value of the business is hurtling toward zero.