Jio, Airtel, Vodafone and Idea AGR Dues Issue. Sould You Invest Here Or Not?

                
                                                                credits:wikimedia

Readers, a few years from now when we used to take telecom industries name we used to get a lot of names in our minds, back then Reliance, Aircel, Vodafone, Idea, Airtel there were 15 such companies in the telecom sector. If I talk about as of today, there are only four major companies in the telecom sector, Reliance Jio, Airtel, Vodafone and Idea and Government sector company BSNL, rest of the companies have closed down or are at the verge of it. There were many reasons that the companies could not sustain here.

The rest of the four companies here are also in problem cause of the AGR dues. Talking about AGR Dues, Adjusted Gross Revenue, what is it? How does it function? Why these telecom companies are under such a problem now? Let's talk about these things in this article, so that if you are planning on investing in telecom sector you know which things to keep in mind. Let's go to history first to understand from where the AGR issue started and its implications on companies, If I talk about before 1999, if any company operated in the telecom sector they had to take a fixed license there was no revenue sharing model. After 1999, the Government introduced a new model here called Revenue Sharing Model, companies had to give a fixed percentage of their revenue to use the facilities, licenses to Government. Initially, this revenue share was high then this percentage came down to 8% by 2008 which was very less. You might be thinking from where did this AGR issue begin? Now, what is the full form of AGR? Its full form is Adjusted Gross Revenue which means a particular fixed share of their revenue will have to be shared with the government. The issue which got raised in DOT (Department Of Telecommunications) and companies were the cause of its definition initially companies enforced that the revenue share, companies have to give should be from their core business, companies will give AGR percentage on core businesses which used the Government facilities and infrastructure. 

                                                
                                                               credits:telecomnews

Here I will clear out your misconception firstly, say if your sales are of Rs 100 and your profit is of Rs 10 then the AGR dues you will have to pay are from the Net Revenue not on Net Profit according to this the number becomes very big AGR definition argument started from there and it continued to different courts. Courts tried to sort this fight but they could not find a solution and at the end, DOT went to the supreme court with it and when the court passed its judgment in 2019 it was in favour of Government and DOT Court declared that the dues will have to be paid in accordance with the definition set by DOT and not on the basis of core revenue companies pay heavy liabilities. The interesting thing here is they will have to pay the dues retrospectively. Retrospectively here means the company will have to pay the old dues with the interest of the past years, It is said that the companies have a liability of Rs 1.45 lakh crores which they will have to pay the Government. Supreme Court very aggressively asked the companies to pay the dues in the next three months and that was the time when Jio entered the market and the companies were not in the position to pay the dues. After that Government took many steps to remove the stress from the companies like initially they were given a moratorium of a few years after which Supreme Court stringently asked the reason to Gov for not collecting the money from the companies. 

Companies are not in a good position already, If I talk about today, Airtel has already done some payment but Airtel still has the liability of Rs 25,000 Cr. Vodafone and Idea has a liability of more than Rs 50,000 Cr which they have to pay under AGR Dues. As you know this company is already in a financial problem it booked a loss in the last few quarters, it was the biggest loss in the financial history of India. The news I gave you about AGR Liability of 1.45 lakh crore and its history I told you about the liability on Airtel and Vodafone, this news was till 2019 end. In recent times you might have heard in the news that judgment on AGR is going to come out. What is that judgment? What is the difference between the old issue and the new issue? What is the difference between them? Why is it said that there can be a positive or negative effect on different companies of this? Before the limelight was more on Airtel, Vodafone but now even Jio is in the limelight. 

           
                                                                   credits:xdadevelopers

Let's talk about the ongoing issue in the supreme court, how is it related to AGR dues and how is it different? Readers, I will talk about three different companies. RCom, Aircel and Videocon If I talk about AGR dues on each then R. Comm has Rs 25,000 Cr of AGR Dues Videocon has Rs 1,300 Cr of AGR Dues, Aircel has dues of Rs 15,000 Cr, Now you might be thinking why am I shifting the focus from the three main companies and focusing on these because the current issue in the supreme court is related to the cause. At the beginning of the article I mentioned out of 15 companies, 10 to 11 companies are almost in the state of closing down whenever a company is going to go insolvent or close, it sells off all the assets and starts to repay its debtors. Thus the supreme court is of the thought that if these three companies close down with Rs 25,000 Cr, Rs 1,300 Cr, and Rs 15,000 Cr. Who will pay off their debt? If these companies liquidate and sell off all their assets, they will never be able to repay the Gov. That's why the debate is going on in the supreme court that these 3 companies with AGR dues, to whom they sold their spectrum, will those companies have to pay AGR dues or not? means like R Comm sold its spectrum sometimes back to Reliance Industries, Aircel and Videocon sold its the spectrum of different bandwidth to Airtel. If these companies liquidate, who will pay off their AGR dues?

If these companies come under the liability to pay off the AGR dues if RComm's liability will have to pay off by Reliance Industry if Aircel and Videocon's dues will have to pay by Airtel thus these two giants of the telecom sector can face a huge debt. But we will only know in the future if the dues will have to be paid off by the companies or it will get saved from paying off this liability, cause a lot of debate is going on regarding this in Supreme Court. It is being said that the Supreme Court has already reserved this judgment and it will be out in a few days. We have learned from the observation that in case these companies are not able to pay off the liability then their spectrum will be closed down and the companies which bought the spectrum will have to pay. If not, then the spectrum would be closed down but till the time the judgment is out we should not comment on its absolute result, these are just speculations. Other than this many companies spoke in their own favour like Airtel said that they didn't receive any requirement from DOT to pay up the AGR dues before spectrum deal even Reliance Jio said no requirement was received by them, when they did a deal on the spectrum they were not told that they will have to repay any dues related to AGR then why do they have to pay now. These things are debatable and this case is still with the Supreme Court. 

The actual result will be known after the judgment whether companies will have to pay these dues or these companies will save themselves from paying it. Companies are asking for time to repay so that they will get the bandwidth to expand their business and with that revenue, they can even repay this loan. Supreme Court has asked the Govt to make a plan ready on how they will recover the AGR dues from the companies which are going to bankrupt very soon, Supreme court is very stringent in these matters and has said that Gov will have to recover these dues but its actual judgment will only be known in the future. Readers, I would like to suggest to you all to not do any speculations. I am not stopping you from investing or am asking you to buy shares in certain companies but if you plan to invest in telecom in the future then research the companies and analyze it, learn their expansion plan and their going concern, after knowing these things decide whether you want to invest or not. These are the liabilities which can be pretty big and if liabilities don't have to be paid, it can be good news but it won't be right to speculate at this point. If you are planning to invest here choose a good company, understand its business model and invest in for a long horizon, If you feel that I will earn a lot of money after 5 days from investing now, this strategy will be wrong. By following this strategy, your chances of making losses will increase and If you have already invested in these companies. It's very important for you to follow this news you should know the ongoing issues in your invested company and how can these companies perform with these issues. Keep these things in mind and do a good investment invest for the long term, follow the news, and do tell us int the comment section what you feel about this. HAPPY INVESTING

AbhishekRawat
ContentWriter
@DAYLIGHTMED