Reportedly Fitch Ratings said the decision by all three private indian telecommunication companies to raise tariffs from december 2019 and a two year moratorium on payment of spectrum dues are positive for the industry. Meanwhile these are unlikely to be sufficient to offset the impact of a recent supreme court judgment for incumbents Bharti Airtel (BBB-/Rating watch Negative) and vodafone idea Ltd.
Furthermore the supreme court ruled against the telcos in a 14 year old dispute on the definition of adjusted gross revenue (AGR) on which the incumbent operators must pay hefty dues to the government. Further reliance jio (Jio), a subsidiary of reliance industries Ltd (RIL, BBB-/Stable) is not affected by the ruling and is likely to continue to gain revenue market share, which will support RIL's deleveraging plans.
Moreover vodafone idea and Bharti will benefit the most as their negative free cash flow will reduce by $1.7 billion and $850 million a year, respectively, for the financial year ending march 2021 (FY21) and FY22. Perhaps the incumbents are likely to file a review petition in the supreme court and have also approached the government to seek other forms of relief including waiver or grant of deferred payment terms for the AGR dues and a reduction of licence fees and spectrum usage charges. Hence despite the tariff hike, Fitch still believes it will take negative rating action on Bharti if it pays the AGR dues within three months and funds the payments entirely by debt.
