Airtel contingent liability doubles from FY18 to FY23 on OTSC demands

Bharti Airtel’s contingent liabilities stemming from demands raised by the Department of Telecommunications (DoT) has more than doubled between FY18 and FY23, and the biggest component is one-time spectrum charge (OTSC) dues.

“Airtel’s contingent liabilities pertaining to DoT claims have seen a sharp jump year-on-year, from Rs 4,100 crore in FY18 to Rs 11,500 crore in FY23, (and) the largest component within this is OTSC,” IIFL Securities said, analysing company data.

A contingent liability is, typically, disclosed where there is a possible obligation or a present obligation that may require an outflow of resources. It is seen as a potential loss that may occur depending on the outcome of a specific event.

As per an Airtel filing to BSE last month, the telco’s OTSC dues to DoT are estimated at a whopping Rs 15,178 crore. “Of this, around Rs 8,500 crore has been provided for, while Rs 6,600 crore is treated as contingent liabilities,” IIFL said in a note to clients.

The 11-year-old OTSC case is a high stakes legal battle between the government and telcos over statutory dues, and the matter is pending adjudication in the Supreme Court and Bombay High Court.

It stems from a government decision to charge telcos OTSC shortly after the apex court cancelled 122 telecom permits in 2012 in connection with the 2G scam and said that spectrum is best allotted via auction. Subsequently, the Cabinet had cleared OTSC, saying all spectrum allocated beyond 4.4 MHz/circle would be charged at market rates. Telcos had challenged this in court.

Loss-making Vodafone Idea’s OTSC dues, in turn, are estimated at almost Rs 7,000 crore. As per Vi’s filing last month to BSE on material litigations, the company’s total estimated OTSC dues to DoT (including the Rs 3,322 crore dues of erstwhile Idea Cellular) are estimated at Rs 6,921 crore.

But unlike Airtel, Vi has not treated its OTSC dues as a contingent liability as it believes these charges levied by DoT are not tenable. However, in its FY23 annual report, the company said that its accrual towards OTSC has risen to Rs 5,644.9 crore in end-FY23 from Rs 4,957.2 crore in end-FY22.

At press time, Airtel and Vi did not respond to ET’s queries. Market leader Reliance Jio is not impacted in the OTSC case as it started telecom operations only in September 2016 and got all its airwaves via auctions.

As per DoT’s formula, a telco with over 6.2 MHz/circle between July 2008 and December 2012, must pay a one-time market rate for excess spectrum held. Likewise, a telco has to pay a market-linked price for airwaves exceeding 4.4 MHz per circle between January 2013 till the expiry of their permits.

However, in October 2021, the government had signalled its intent to withdraw its appeal in the OTSC case, and instead opt for a mechanism akin to ‘Vivaad se Vishwas’ (VSV) for settling ongoing legal cases, in a move aimed at sharply reducing litigations in the telecom sector.