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Home / India News / HTLS 2019| Will have to shut telco if no govt relief, says Birla

HTLS 2019| Will have to shut telco if no govt relief, says Birla

Birla,who is also chairman of Vodafone Idea, said he is hopeful the company doesn’t find itself in a situation where it needs to exit from the market.

india Updated: Dec 06, 2019, 23:42 IST
HT Correspondent
HT Correspondent
Hindustan Times, New Delhi
Birla said the government had come to realise that “this is a very critical sector, the whole digital India programme rests on this, and it is a strategic sector.”
Birla said the government had come to realise that “this is a very critical sector, the whole digital India programme rests on this, and it is a strategic sector.”(AMAL KS/HT Photo)

Aditya Birla Group chairman Kumar Mangalam Birla sounded a stark warning on Friday, saying the group’s telecom unit, Vodafone Idea Limited, would have to shut shop if no relief is forthcoming from the government to soften the blow from a Supreme Court verdict that it pay the department of telecommunications ~40,000 crore in three months.

Birla,who is also chairman of Vodafone Idea, said he is hopeful the company doesn’t find itself in a situation where it needs to exit from the market.

“But, at the same time, if you ask me specifically, it is true we will shut shop if we don’t get relief. Because there is no company in the world that can pay that kind of fine in three months, it just doesn’t work like that,” Birla added in a conversation at the Hindustan Times leadership summit.

His remarks caused Vodafone Idea stock to fall sharply on the BSE and end 5.34% lower to ~6.92 on a day the benchmark Sensex fell 0.82% to 40,445.15 points at the close of trading.

On October 24, the Supreme Court allowed the central government to recover Rs 92,641 crore in adjusted gross revenue (AGR) from telecom companies in a verdict that hit Bharti Airtel Limited and Vodafone Idea the hardest. The court accepted the government’s definition of AGR — that it includes their income from revenue lines that are not central to their main business.

Income from sales of handsets, termination and roaming charges, rent and dividends should count as part of AGR, which determines what telecom companies pay as licence fee and spectrum usage fee, the court ruled in a verdict that came at a time when debt-laden service providers are already under intense pressure because of adverse regulatory orders,hefty levies and intense competition amid a price war set off by the entry in 2016 of Mukesh Ambani’s Reliance Jio Infocomm Limited Vodafone Idea and Bharti Airtel both posted record losses in the September quarter,

The court order came in a 16-year-old case stemming from DoT claims that telecom companies had under-reported their revenue and thus paid less for spectrum and in the form of other levies.

“So the big elephant in the room is AGR, which is something that lies in the courts [with the judiciary]. I believe the government can have a dialogue — this was a suit filed by the government against the TSPs (telecom services providers). Since the government has won, it gives them headroom to talk to the judiciary and find some sort of a solution. And I hope that happens,” BIrla said.

Birla said the government had come to realise that “this is a very critical sector, the whole digital India programme rests on this, and it is a strategic sector.”

“They have publicly stated that they want three players from the private sector and one player from the public sector, so I think we can expect much more stimulus from the government because it is required by the sector to survive. If we weren’t getting anything, then I think that is the end of the story for Vodafone Idea.”

At a London roundtable in November, Vodafone Plc’s chief executive officer Nick Read had said that the situation in India’s telecom sector was critical. “If you’re not a going concern, you’re moving into a liquidation scenario — can’t get any clearer than that,” Read said in remarks reported by Bloomberg from which he distanced himself a day later.

“I think since Nick made that statement the government seems to have done a lot,” Birla said.

“The realisation is now that you need more players in the sector, because it is strategic and it is not in national interest having so many TSPs [telecom service providers] shutting down,” he said.

In November,the government offered ~42,000 crore in relief to Bharti Airtel, Vodafone Idea and Reliance Jio by unveiling a two-year moratorium on yearly instalments they have to pay for spectrum they bought at auction.

Vodafone Idea has a cash balance that’s half of the Rs 40,000 it owes the government, and Birla stressed that without government intervention, the company could choose not to infuse more money in to the business.

“It does not make sense to put good money after bad,” he said.

Birla also pitched for more stimulus measures from the government, which has already offered a corporate tax cut that entails a revenue sacrifice of Rs 1.45 lakh crore a year,easier access to credit for non-banking financial companies, a real estate fund to revive stalled housing projects and a more transparent and efficient income tax regime.He also called for lower Goods and Services Tax (GST) rates.

“The government has taken many steps but we need a stronger fiscal stimulus. If GST is brought down to 15%, that would be a huge stimulus,” Birla said.

The Indian economy, Asia’s third-largest, is in the midst of a slowdown that has caused the growth rate to decline for six consecutive quarters,most recently to 4.5% in the quarter ended September, the lowest pace of growth since March 2013. On Thursday, the Reserve Bank of India cut its gross domestic product (GDP) growth forecast for the current fiscal year to 5% from 6.1%.

“It could take the Indian economy 18-20 months before it improves,” Birla said.

He also described the global economic mood as sombre.

“It is more than a trade war. No parallel to the US-China trade war in history. It is a war for global economic supremacy. History has no parallel to indicate how it will play out,” Birla said.

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