Anil Ambani was once one of India's wealthiest men. But a London court on Friday heard he now has a “net worth of zero”, according to his lawyers, as three Chinese banks chase Mr Ambani to recover $680 million (Dh2.5 billion). The banks are argue they provided a $925m loan to the tycoon's Mumbai-based telecoms company Reliance Communications in 2012 - under the condition he had personally guaranteed the debt. The telco filed for bankruptcy last year. The courtroom drama reflects the brutal challenges that India's telecom industry has faced and is continuing to struggle with, along with fresh hurdles. “The Indian telecom sector is grappling with high debt and increasing competitive intensity,” says Ajit Mishra, the vice president of research at Religare Broking, headquartered in New Delhi. India’s telecoms industry woes are further worsened by the sector’s disagreement with the government on the payment of adjusted gross revenue (AGR) – a licensing fee that a telecom operator is charged by the government’s Department of Telecommunications. The companies argue that only revenue from core activities should be classified as AGR. But the telecoms department says AGR includes all revenue – including money earned through non-core products and services. This means that the government has ordered telecom operators to pay a total of some $13bn in unpaid charges. In October, India’s Supreme Court took the government's side and ordered operators to pay the money. Again, last month the Supreme Court stuck to its guns, as it rejected petitions filed by telcos Vodafone Idea, Bharti Airtel, and Tata Teleservices to review its October ruling. It is a move that analysts say could further affect the struggling sector. “Payment of AGR dues is a huge liability and it could further strain the cash flows of the companies and deplete their cash reserves, thereby making it difficult for them to invest in business expansion,” says Mr Mishra. The discord between the regulator and telcos comes as India's operators have been locked in fierce price wars over the past few years as they battle for survival. Rajan Mathews, the director general of the Cellular Operators Association of India (COAI), a telecom industry body in New Delhi, says “the situation in the telecom sector is quite critical and telecom service providers are already under financial distress”. The telecom sector is “a key contributor to the Indian economy in terms of consumer benefit, employment, revenue generation” and contributes 6.5 per cent to the country's GDP, according to COAI. But Mr Mathews says “the sector is already reeling under a daunting debt of approximately 4 trillion rupees”, brought on by the intense price wars. Currently, Vodafone Idea, Bharti Airtel, and Reliance Jio are the three private telecom operators still standing in India – down from a dozen operators just a few years ago. The industry has been hard hit by losses and high debt mainly due to cut-throat competition. It was in fact Anil Ambani's brother, Mukesh Ambani - Asia’s richest man - who disrupted India's telecom sector with the launch of his firm Reliance Jio in 2016. The two brothers have long had a tense relationship. Jio shook up the market with its rock-bottom data prices, which pushed telecom operators into prices wars, forcing some players out of the industry, like Reliance Communications, while leading others to merge. It was a situation that almost landed Mr Anil in jail last year, after he failed to pay 5.5 billion rupees to Ericsson's India subsidiary. Mr Mukesh stepped in at the last minute to help his brother and paid the dues. Analysts are still assessing the exact impact that the latest disagreement on calculation of AGR will have on the sector and whether it will force any more players out of the market. “We expect government intervention, at least in terms of extending the deadline, to pay off the AGR dues,” says Mr Mishra. “Hence, it’s difficult to say if any of the telcos would go out of business. However, the possibility of a merger and further consolidation in the sector cannot be ruled out.” The UK's Vodafone Group on Wednesday said that the outlook for its India joint venture, Vodafone Idea, “remains critical”. It is the company that is considered to be most at risk because it is lacking resources to pay the dues. And it has been hit with the biggest charge, totalling some $3.9bn in overdue payments. “The company is actively seeking various forms of relief from the Indian government to ensure that the rate and level of payments it makes to the Indian government is sustainable and it can meet its other commitments as they fall due," Vodafone said in its statement on Wednesday. But its future hinges on whether the company gets the financial support it requires on time. With parent companies “Aditya Birla and Vodafone groups unwilling to infuse equity in Vodafone Idea, we see a strong possibility of Vodafone Idea going for bankruptcy”, analysts at Credit Suisse wrote in a research note, Reuters reported in January. That would make Vodafone Idea the latest victim to fall because of the challenges in the sector. Even its rival Bharti Airtel is gunning for Vodafone Idea to survive, as the alternative of it having to compete with Reliance Jio on its own is far less desirable. “I think Vodafone Idea will remain and I wish it thrives,” said Gopal Vittal, the chief executive of Bharti Airtel, speaking on an earnings call the day after Bharti Airtel on Tuesday posted a third consecutive quarterly loss of $147m for the quarter to the end of December. “It’s important that India remains a three-player market as that’s good from all perspectives [including] investments, jobs and reputation.” Following these comments, Tata Teleservices announced in an exchange filing that the department of telecommunications had approved its merger with Bharti Airtel, plans for which were first announced two years ago. Bharti Airtel is in a stronger position to pay its AGR dues because it has “already raised money in the form of QIP qualified institutional placement) and foreign currency bond”, says Mr Mishra. But Mr Mathews warns that the situation in the telecom industry does not bode well for the foreign investment climate in India. “All investors, including foreign investors, look at business viability and policy certainty prior to taking investment decisions,” he says. “The ongoing financial stress in the telecom sector will adversely impact foreign investment.” Efforts by India's telecom operators to address the profitability woes that they are facing include a hike in tariffs of up to around 40 per cent in December by all three of the private telecom firms. Even with this hike, India still has some of the lowest data costs in the world. Some analysts say that this could help in the longer term, if operators continue to increase prices. “Although in the near term, these companies might face financial difficulties but overtime they too shall thrive and grow by raising tariffs in order to survive,” says Umesh Mehta, the head of research at Samco Securities. “Telecom being an integral part of the economy, every large institution would want to have a piece of it - this can be interpreted from Bharti Airtel’s stock which shot up despite reporting losses for three consecutive quarters.” He believes that it “seems unlikely that more telcos would go out of business at the moment”, partly because the Indian government is aggressively pushing its Digital India initiative, which aims to push more Indians to use services online. He says it is not in the government's interests for yet another company to exit the telecom sector. “Given the ease of connectivity and technology advancement that these telecom players bring to the table, it makes a strong case for the government to keep all these players (three private and one public) afloat in order to maintain a healthy price decorum for the advancement of its Digital India campaign,” says Mr Mehta.
