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Government relief only hope, else telecom sector headed for duopoly: Analysts

Bharti Airtel is better financially placed to pay its statutory dues of Rs 35,000, analysts believe.
NEW DELHI: The future of the second-largest telecom industry in the world with an installed subscriber base of over 1.2 billion, contributing 8% to India’s GDP growth has hit a roadblock post dismissal of review petition on Adjusted Gross Revenue (AGR) by the Supreme Court on Thursday.

Industry experts are divided over the likely outcome of the sector heading towards a duopoly with two private telcos-Reliance Jio and Bharti Airtel plus one PSU- BSNL with a limited reach. While others are banking their hopes with the government stepping in with some sort of relief measure such as allowing staggered payments over years.

New Street research believes that a two-player outcome by far is the most likely outcome due to three reasons- the government unilaterally will not provide any relief to VIL, Vodafone Plc will not break the self-imposed ring fence of further investment in India and the curative petition examined by telcos is highly unlikely to be successful.

“Since Vodafone does not have a way to raise $7bn we are almost certainly headed towards a 2-player market, which is very positive for Bharti Airtel’, New Street Research said in a report.

While Vodafone Idea is reeling under the debt of Rs 53,000 crores as AGR payment, Bharti Airtel is better financially placed to pay its statutory dues of Rs 35,000, analysts believe.

However, brokerage firm IIFL Securities proposed a different outlook by saying that the government is likely to spreads out the payments over a long period (10-20 years) to avoid pushing VIL into the NCLT.

“The consequence of no action by the government would definitely include a major hit to government revenues (Rs910bn from VIL in old spectrum dues, plus this AGR penalty), a significant hit to the banking system, and a reputation hit for India as an investment destination,” it said in a report.

Edelweiss Research described the situation as collateral damage for Bharti Infratel which cannot escape the repercussions of the potential change in market structure.

“A further potential consolidation of telecom operators will have second-order effects on Bharti Infratel, as its tenancies will get impacted,” it said.

Bank of America Global Research remains optimistic about the outcomes of the curative petition as the case effects 300+ million citizens, GDP of the country and harm the future of a strategically important sector in the country.

“Our base-case view remains that government could still help sector as it wants to retain a 3 player structure; hopes of a favorable outcome from a potential curative petition remain,” BofA Global Research said in a report.
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