

By Sankalp Phartiyal

NEW DELHI (Reuters) - The Indian government's win of a long-contested dispute over telecom fees could end up a Pyrrhic victory, as the billions of dollars in levies now owed are seen as burdens too big to bear for two of the country's three main carriers.

Vodafone Idea Ltd , India's biggest carrier by user numbers, is widely regarded as most on the ropes, with parent Vodafone Group calling the situation "critical" after the unit was saddled with about $3.9 billion in fresh payments due.

That is the biggest portion of the $13 billion incurred by the sector after India's Supreme Court last month sided with the government in how spectrum usage and license fees are calculated.

Bharti Airtel , the No. 3 provider which must pay roughly $3 billion under the ruling, has also flagged distress, saying the decision casts much doubt on "its ability to continue as a going concern."

To industry executives and analysts alike, there's only one solution for the sector which was even before the current crisis debt-ridden and battered by a brutal price war: significant government financial support.


"If the government does provide some measures, there is still some chance for (Vodafone Idea) to continue as a going concern. It all depends on what kind of relief measures the company will get," said Umesh Mehta, head of research at Samco Securities.

He said he expects the company to survive as it is in the government's interest to have three main players to ensure sufficient competition in the sector.







Hurt by the price war that began with the 2016 entry into the market of Jio, a unit of deep-pocketed Reliance Industries Ltd , Vodafone Idea has net debt of $14.2 billion, six times its market capitalization and four times its cash holdings.


"If Vodafone Idea doesn't have enough customers left, it is going to be very difficult for it to remain solvent," said Vivekanand Subbaraman, an analyst at Ambit Capital.




"There's bound to be more congestion, there is going to be further deterioration in quality," said T.V. Ramachandran, president of Broadband India Forum.

It would also represent a huge setback to India's push to make government services accessible to hundreds of millions of Indians via the internet.

Any exit would hurt telecom gear makers such as Finland's Nokia , Sweden's Ericsson and China's Huawei Technologies and ZTE Corp <000063.SZ>, industry executives said.

Bharti Airtel and Vodafone Idea use equipment and services from all of these vendors, unlike Reliance's Jio, whose network has been built largely by a unit of South Korea's Samsung Electronics <005930.KS>.

The current turmoil in the sector is also likely to further dampen interest in an auction of 5G airwaves expected before end-March. All three firms have warned the base price set by the government is too high given that India's user fees are among the cheapest in the world.

"Even otherwise, the 5G auction did not look very bright," said Broadband India Forum's Ramachandran.


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