Vodafone faces potential collapse after SC orders telecom firms to pay Rs 1.47 lakh crore in a month

Shares of Vodafone Idea tanked on Friday following the Supreme Court verdict. It plunged 16.67% to Rs 3.75 around 2.30 pm.

The Supreme Court’s contempt notices to telecommunication firms for not paying the Rs 1.47 lakh crore that they owe the central government has dealt another blow to Vodafone Idea, which had warned of a potential collapse just a few months earlier.

A bench of Justices Arun Mishra, S Abdul Nazeer and MR Shah on Friday issued notices to Bharti Airtel, Vodafone, Tata Teleservices and others, ordering them to pay adjusted gross revenue of Rs 1.47 lakh crore to the Department of Telecommunications before the next hearing on March 17. The court said that if the amount was not paid, the managing directors and other senior officers of the companies will have to personally appear in court for the next hearing.

Vodafone has to pay around Rs 53,000 crore as regulatory fees – the highest among the companies – even as it attempts to check its losses and debt. In December, company’s Chairman Kumar Mangalam Birla said that Vodafone Idea will have to shut shop if it does not get relief from the government. He said his group will not invest any more money in the company if relief does not come by as that would “not be good business”.

“There’s zero hope for Vodafone Idea,” Neerav Dalal, an analyst at Kim Eng Securities in Mumbai, told Bloomberg. “Some relaxation by the Supreme Court would’ve got them some breathing space. They’re definitely not in a position to pay.”

Shares of Vodafone Idea tanked on Friday following the Supreme Court verdict. It closed 22.22% lower at Rs 3.50.

On Thursday, Vodafone Idea had reported a consolidated loss of Rs 6,439 crore for the December quarter compared to a loss of Rs 5,005 crore that it had reported in the same period in 2018-2019. However, sequentially, it reported a 2.3% increase in revenues to Rs 11,089 crore, according to Mint. This was the highest revenue growth the company reported since the merger of Vodafone India and Idea Cellular in 2018.

Fifteen entities owe the government Rs 1.47 lakh crore. Of this, Rs 92,642 crores amounted to unpaid licence fee and Rs 55,054 crore is outstanding spectrum usage charges. Vodafone Idea owes the government most – Rs 53,000 crore – followed by Bharti Airtel (Rs 35,500 crore) and the now defunct Tata Teleservices, which owes the government Rs 14,000 crore.

Airtel is expected to survive this crisis. This was also evident in the stock market on Friday as the shares of Airtel rose 4.38% despite the court’s ruling. Many analysts expect Airtel to pay off its dues and survive and eventually enjoy a duopoly with Jio in the sector.

‘Is there no law left in the country?’

The Supreme Court also expressed its anguish on Friday over a Department of Telecommunications officer imposing a stay on earlier Supreme Court directives to the telecom firms. The top court said a desk officer has been writing a letter to Attorney General KK Venugopal and other constitutional authorities, saying they should not insist on payment of money by telecom companies and others and to ensure that no coercive action is taken against them.

“We don’t know who is creating this nonsense,” the court said. “Is there no law left in the country...it is better not to live in this country and rather leave the country.”

Justice Mishra said that if a desk officer has the audacity to stay an order of the Supreme Court, then perhaps the top court should “wind up”. The court also issued a contempt notice against the officer of Department of Telecommunications. “Does the Supreme Court have no value?” Mishra asked. “This is the outcome of money power!”

“We have dismissed a review plea in adjusted gross revenue case but still not a single penny has been deposited,” Mishra said. “Our conscience has been shaken by the way things are happening in the country.”

On January 15, the top court had dismissed petitions filed by telecom firms such as Bharti Airtel and Vodafone seeking a review of its earlier order that allowed the government to collect Rs 1.47 lakh crore in past statutory dues by January 23. The court said it did not find any “justifiable reason” to entertain the petitions.

In October, the Supreme Court had asked telecom operators to pay tax on their non-core revenues over and above the spectrum usage charges and licence fees. It upheld the Centre’s broader definition of revenue, based on which the government calculates levies on telecom operators. Airtel and Vodafone Idea are facing a combined liability of Rs 82,000 crore.

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