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Vodafone Idea faces uncertain future after India top court ruling

Supreme Court asks telecom companies to pay $13 billion of levies by Mar. 17

Vodafone Idea may have to pay as much as 442 billion rupees ($6.2 billion) in adjusted gross revenue dues and penalties, the biggest in the industry, while rival Bharti will have to fork out 343 billion rupees.   © Reuters

MUMBAI (NewsRise) -- India's Supreme Court ordered telecom companies to pay all levies and penalties totaling billions of dollars before Mar. 17, a ruling that could lead to the end of the road for debt-laden Vodafone Idea.

On Friday, the apex court refused to give any reprieve to Bharti Airtel, Vodafone Idea, and other telecom companies who had sought an extension to pay the overdue amount to the nation's telecom department. The court said the operators have violated its previous order, despite the dismissal of a review application.

The Supreme Court had, in October, upheld the telecom department's demand that operators pay $13 billion in levies and penalties on or before Jan. 23. Several companies including, Vodafone Idea had since then filed petitions to review the ruling, which were subsequently thrown out by the court.

Later, the operators requested the court to give permission to extend the payment deadline from Jan. 23 and the powers to negotiate the frequency of payments with the telecom department. They sought to wait for the court verdict before making any payment even after the court-set Jan. 23 deadline.

"In these circumstances, we draw contempt on all companies for violating court order and that managing directors be present in the court for the next hearing and explain why they haven't complied with the order," Justice Arun Kumar Mishra said in today's order.

Vodafone Idea may have to pay as much as 442 billion rupees ($6.2 billion) in adjusted gross revenue dues and penalties, the biggest in the industry, while rival Bharti will have to fork out 343 billion rupees.

Representatives at Bharti Airtel and Vodafone Idea did not immediately comment on the court ruling.

Meanwhile, the telecom department said it is withdrawing a previous notice that allowed the operators a payment reprieve until a court verdict on their plea. The companies have to take "immediate necessary action" in compliance with the ruling, it said in a statement.

Today's court order deals a major setback to the carriers that are already contending with intense price competition triggered by entry of billionaire Mukesh Ambani's Reliance Jio Infocomm more than three years ago. Jio's strategy of offering free calls and cut-rate data tariff eroded revenue and profitability of incumbent operators.

It also serves a deathblow to Vodafone Idea which is barely managing to stay afloat with limited operating cash and saddled with a debt of 1.03 trillion rupees. Its cash and cash equivalents at the end of December stood at 125 billion rupees.

On Thursday, the Indian venture of U.K.'s Vodafone reported its sixth straight quarterly loss as it continued to shed millions of users amid the intense price competition. Its quarterly loss widened to 64.4 billion rupees from 50.05 billion rupees a year earlier. In July-September, the company reported a loss of 509.22 billion rupees, the biggest-ever loss posted by an Indian company.

Vodafone had on Thursday said there is "material uncertainty" that is casting a "significant doubt" on the company's ability to continue as a going concern. The uncertainty also casts doubts on the company's ability to generate cash flows that it needs to settle or refinance its liabilities, it added.

Vodafone said its ability to continue as a going concern is dependent on the positive outcome of the plea before the court, and subsequent agreement with the telecom department for payments in instalments, after some moratorium and other reliefs.

Shares of Vodafone Idea slumped more than 23% in Mumbai trading on Friday. However, Bharti Airtel's shares rose 4.7% to a record high of 565.10 rupees as investors bet that the industry would consolidate into a two-player market.

--Dhanya Ann Thoppil

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