In a major relief to the India telco sector the Supreme Court of India (SC) has permitted the government to reassess adjusted gross revenue (AGR) dues of Vodafone Idea Ltd (VIL) till FY 2016-17 giving the embattled operator some much-needed respite. In the near-term Bharti Airtel Ltd is expected to make a case to the government for a similar review of its regulatory liabilities which could potentially have a positive knock-on effect on the overall telecom industry. Key Details from the Order: AGR Reassessment for VIL SC has now clarified in an order that DoT is allowed to do “comprehensive assessment reassessment and reconciliation” of AGR dues with regard to VIL along with interest and penalties till FY 2016-17. The case of VIL now stands on a different footing from that of other telcos because it had moved the petition. “For clear and determinate purposes a distinction between cases of co-petitioners in the writ petition and the cases of other licensees/carriers is to be made on the basis of whether such parties have moved a similar plea before the Hon’ble Court” the SC order stated. Responding to the SC order Airtel MD & Vice-Chairman Gopal Vittal said that Airtel has always supported VIL’s stand. “As we have always said we support VIL’s stand and case fully. We welcome the Supreme Court order in that regard where SC has not stayed the DoT order and has given liberty to VIL to move its plea on AGR assessment/reassessment. The fact that the recent order … permits the government to undertake a comprehensive assessment … we are now planning to take up our matter with the government” Vittal said. AGR-related issues under the spotlight: Why this order matters? AGR in the telecom sector refers to the share of gross revenues on which a telecom company is liable to pay regulatory dues such as license fee and other statutory levies (licensing fees national security contributions spectrum usage charges one-time levies for the roll-out of 5G etc.) in India. A contentious 2019 judgement in the SC on AGR did not countenance calculation errors on the part of operators during an AGR reconciliation process for past years with Airtel’s management at the time describing it as a “body blow” to the telecom sector in India. For VIL which is in deep financial stress this court order could significantly defang one overhang for the time being. For Airtel and other telcos in India a similar reassessment would be a huge game-changer in the telecom space - since the liabilities previously fixed could get re-written if possible allowing for a level-playing field between operators. Market and Industry Implications Airtel shares were being reported to be trading up by around 1.66% in noon trades on the National Stock Exchange on Tuesday on the news of the SC order for VIL. While there is plenty of uncertainty on the telecom scene as a whole - a Supreme Court order aside - this is one positive development as of now as at least some part of the sector may get some relief and liquidity after the auction of new 5G airwaves. A relief for VIL but only in the case of VIL is the caveat. The SC order currently applies only to VIL because of the petition filed by the company and a similar formal request by Airtel and others will still have to be dealt with by the government. Further as per analysts any clarity or adjustment on AGR dues may also lead to a complex road ahead with regard to how interest and penalties are handled and whether such regulatory dues will be converted into equity - which Airtel has reportedly explored in the past as well. What’s Next: Could SC Order Lead to AGR Review for All? It remains to be seen if the government now comes to Airtel’s or other telcos’ rescue with a formal approval for AGR dues reassessment for the industry. The Department of Telecommunications may in fact extend a similar opportunity for AGR reassessment to all telecom licensees in order to create a fair situation across the industry. In the larger context the order may have some bearing on future regulatory framework auction economics and telecom consolidation in India. In short the SC order has opened one door. It remains to be seen how widely and quickly this door will be walked through in the coming times for India’s telecom sector.