Asia’s Richest Man Gets Win as Rivals Face $7 Billion Bill

(Bloomberg) -- The latest blow to India’s wireless carriers left billionaire Mukesh Ambani’s telecommunications operator largely unscathed, bolstering Reliance Jio Infocomm Ltd.’s position as the top provider of voice and data services in the world’s second-biggest market by users.

India’s Supreme Court on Thursday ordered phone operators in the country to pay the government a combined 920 billion rupees ($13 billion) in past airwave and license fees. The ruling came after a two-decades-old legal dispute between authorities and the companies over the payments.

In a market already bruised by a price war since Jio’s 2016 entry with free calls and cheap data, the biggest loser from the court order is Jio’s closest rival, Vodafone Group Plc.’s local venture. The U.K.-based operator and its Indian partner now need to pay $4 billion, a huge burden for a carrier that hasn’t reported operating profit since 2017. Bharti Airtel Ltd., the No. 3 carrier, faces a bill of $3 billion, compared with Jio’s $1.8 million, an amount reflecting the fact that Ambani’s operator has only been in business for three years.

In that span, Jio’s price-slashing has dragged down competitors and prompted more borrowing just to stay in the game. Bharti Airtel and Vodafone Idea Ltd. have racked up a combined net debt of almost $28 billion and face the prospect of billions of dollars more in spending on introducing 5G networks. Bharti Airtel, controlled by tycoon Sunil Mittal, reported its first ever loss in the quarter through June.

“In case of full payment, VodaIdea will have no cash for capex or spectrum installments for next three years,” Jefferies said in a research note. “For Bharti, it will mean curtailing of capex. We await more clarity on amount and terms of payment.”

Vodafone Idea has shed about $931 million in market value in the past four trading days in Mumbai as its stock plunged by more than a third.

The shares slid as much as 16% Friday to a record low, following a 23% drop on Thursday. Airtel was down 2% as of 1:06 p.m. in Mumbai trading.

Deep Pockets

Backed by the deep pockets of Ambani’s Reliance Industries Ltd. oil-to-retail conglomerate, Jio has spent $50 billion to build its nationwide network and had a debt of 840 billion rupees. The carrier reported quarterly profits this fiscal year after luring users away from Airtel and Vodafone. Reliance shares slipped 0.5% after rallying 3.2% on Thursday.

Still, the court decision means Jio will face some pressure on earnings, because the ruling endorsed the way the government measures revenue as regards license and spectrum fees, according to Bloomberg Intelligence.

What Bloomberg Intelligence says:

Reliance Jio may be less hit than rivals by a one-time demand in arrears from the Indian government’s Department of Telecommunications (DoT), but the Supreme Court’s ruling on the revenue treatment of charges and fees could slow the segment’s profit growth. Jio generated 23% of Reliance’s Ebitda in fiscal 1H, a share that’s poised to grow.

--Henik Fung, analyst

India’s Supreme Court is deciding when the carriers will need to pay the amounts.

Vodafone Idea and Airtel have said they are disappointed with the ruling. The telcos may either appeal to a larger bench of the Supreme Court or ask the government to waive the penalties and interest or seek deferred payment options, Jefferies said.

Additionally, Vodafone faces the prospect of a $2.2 billion tax bill linked to its 2007 acquisition of Hutchison Whampoa Ltd.’s Indian operations. The U.K.-based carrier’s Indian unit, which agreed to merge with billionaire Kumar Mangalam Birla’s Idea Cellular Ltd., is fighting a government demand that came despite a ruling in its favor by the nation’s top court in 2012.

--With assistance from Upmanyu Trivedi.

To contact the reporter on this story: P R Sanjai in Mumbai at psanjai@bloomberg.net

To contact the editors responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net, Dave McCombs

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