Indian Supreme Court hands reprieve to Vodafone Idea in fee battle

Vodafone’s struggling Indian venture was given a reprieve on Tuesday as the country’s top court ruled that telecoms companies could take a decade to pay back billions in retrospective licence fees and penalties.

The Supreme Court judgment marks a softening of its tough orders earlier this year that mobile operators — including Vodafone, Bharti Airtel and Reliance Jio — pay a combined $13bn in retrospective dues within weeks.

That verdict had prompted doubts about whether Vodafone Idea — India’s third-largest mobile operator, in which the UK-based group holds a 45 per cent stake — could survive, after the parent ruled out a cash infusion into the struggling business.

Tuesday’s ruling came in response to an appeal by the Indian government’s telecoms department, and is still something of a disappointment to operators. Vodafone had sought 15 years to clear its estimated $7bn in dues, and the government had proposed a 20-year horizon for repayment.

Shares in Vodafone Idea tumbled more than 20 per cent in Mumbai following the ruling, before recovering to trade about 13 per cent down.

However, analysts said the 10-year timeframe — with the first 10 per cent payment due in March 2021 — would still give Vodafone’s Indian venture sufficient breathing space, though it would probably have to raise tariffs to increase its revenues.

“This is great news for the industry,” said Rohan Dhamija, partner at telecoms consultancy Analysys Mason. He estimated that with 10 years to pay the dues, Vodafone Idea should be able to stay in business as long as its monthly average revenue per user climbs to about Rs180 ($2.47), from Rs114 now. 

Mukul Rohatgi, an attorney for Vodafone Idea, called the verdict “a positive sign” for the company.

“The only way to survive is have a longer road to carry on your business,” he told an Indian television channel. “That is the way one can keep swimming and not sink. Ten is not bad; suppose the court had given us two years. That would have been a disaster situation.”

Shares in Bharti Airtel, which is in a stronger financial position and owes about $3bn in fees, initially jumped more than 6 per cent on the ruling.

The demand for up to $13bn in unpaid dues is the culmination of a decades-old legal dispute between New Delhi and telecoms operators over companies’ obligations to share a percentage of their adjusted gross revenues as licence fees.

New Delhi had insisted that telecoms companies should share a percentage of all their revenues, including from non-telecoms businesses. Operators contested that claim.

In October, the Supreme Court overturned a previous lower court ruling in favour of the companies, and instead upheld New Delhi’s more expansive definition of adjusted gross revenues.

That prompted New Delhi to issue a notice to firms for immediate repayment of $13bn in fees. The heaviest burden fell on Vodafone and Airtel, as Reliance Jio was a much later entrant into the market.

Since then, companies have been in court skirmishing over the timeframe for repayment.

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