Government Will Be The Biggest Loser If A Telecom Operator Collapses

While slamming its rivals for seeking relief on pending dues, the telecom unit of Asia's richest man, Mukesh Ambani, said given the vibrant competition there would be no impact on the sector if, in an unlikely event, Bharti Airtel Ltd. and Vodafone Idea Ltd. were to fail. The government wouldn't agree.

Such a collapse would leave thousands jobless and inflate one of the world's worst bad-loan piles. Moreover, according to BloombergQuint's calculations, the government would lose nearly Rs 1.82 lakh crore ($26 billion) in outstanding levies.

The operators sought relief after the Supreme Court ruled non-core revenue would be factored in while calculating levies and they must pay Rs 92,000 crore ($13 billion)— Bharti Airtel and Vodafone Idea together owe more than half of it. The payouts threaten to cripple the wireless carriers that have seen their debt mount and profits tumble after Ambani's Reliance Jio Infocomm Ltd. unleashed a tariff war three years ago. Its cut-rate plans forced bigger rivals to merge and drove others out of business, contributing to the Indian banks' bad loans.

Telecom companies pay half of the spectrum costs upfront and, after a two-year moratorium, the remaining half in instalments—or deferred spectrum liability—over 16 years. The payouts ordered by the Supreme Court along with the spectrum liabilities contribute 67 percent of the combined debt of Bharti Airtel and Vodafone Idea.

The rest of the debt comprises bank loans, non-convertible debentures and foreign debt.

Another legal dispute stemming from the government's demand from one-time spectrum charge is also pending. A loss there would be another setback for the operators.

Already, multiple brokerages including Emkay Global and Bank of America Merrill Lynch have said the carriers are incapable of paying thousands of crores as dues and penalties as they continue to bleed from the tariff war. And they expect the government to support the industry by waiving penalties, reducing levies or increasing the moratorium on annual payments, among other things. The Modi administration has set up a committee of secretaries to examine the financial stress faced by telecom operators and recommend a package.

Reliance Jio, however, opposed the telecom operator lobby's demands seeking relief, saying its rivals have sufficient capacity to pay the government dues by monetising assets and increasing tariffs.