Indian telecom companies Bharti Airtel and Vodafone Idea are checking options and formulating strategies after the Supreme Court last week ordered them to pay dues, collectively running up to 1.3 trillion rupees, to the telecommunication department.

The court order has come as a huge blow to the companies – both of which have been struggling to survive the predatory competition unleashed by Reliance Jio, owned by India’s richest man, Mukesh Ambani.

The dispute between the telecom companies and the telecommunication department was over how much money the former should pay as license and spectrum fees.

Telecom companies had contended that they should pay the fees based on the earnings from their core telecom business. But the telecommunications department had argued that the earnings from handset sales and other sources of income should be part of it.

The Supreme Court upheld the demand raised by the telecommunications department and the amount due could be in excess of 1.3 trillion rupees.

Telecom companies pay license fees and spectrum usage charges annually to the government on the basis of adjusted gross revenue, and the Supreme Court has now broadened the definition of this revenue.

The pending license fees and spectrum usage charges due for Bharti Airtel will be 410 billion rupees, while that of Vodafone Idea will be 390 billion rupees. Of the two, Vodafone Idea has a weaker balance sheet and it will be worse hit.

The court order has paved the way for the telecommunication department to seek more than 1.3 trillion rupees in dues, penalty and interest from operators. The court has provided the telecom companies three months to pay the dues.

The two companies are making a financial and legal plan to raise funds that will allow them to stay viable. Bharti Airtel and Vodafone Idea want the government to intervene and the latter may seek a waiver of penalties and interest.

As for Reliance Jio, it may not be affected now, but the new broader definition of adjusted gross revenue will force the company to rework its future strategies.

Tariffs going up?

The new development will further nudge the telecom companies to stop freebies, and to increase call and data charges in a price-sensitive market. Telecom charges in India are the cheapest in the world.

A study by price comparison site Cable.co.uk revealed that India has the cheapest mobile data in the world with 1GB costing just 18.5 rupees (26 cents) as against the global average of about 600 rupees ($8.48). In UK 1GB costs $ 6.66, while in the US the price is $12.37.

Reliance Jio had already started charging for voice calls made to subscribers of other telcos to account for the termination charges it pays its rivals Bharti Airtel and Vodafone Idea. But to soften the blow to users, it has said it will offer additional data.

5G trials to be hit

The new blow to Bharti Airtel and Vodafone Idea will further deplete their ability to muster resources for the forthcoming 5G trials. As they have now been forced to make higher provisioning for adjusted gross revenues, they may put their 5G plans in backburner.

Bharti Airtel and Vodafone Idea have applied to participate in 5G trials along with vendors Nokia, Ericsson and Huawei and are awaiting spectrum allocation.

The trials were among key projects that the government wanted to begin in its first 100 days, a deadline that passed in September. The next spectrum auctions, including 5G airwaves, are scheduled to be held by March 2020.

The Indian telecom sector is laden with a debt of over 7 trillion rupees ($99 billion) and the government is reportedly looking at ways to lessen the sector’s burden.