A pedestrian using a mobile phone stops outside a Vodafone store in Mumbai, India. Picture used for illustrative purposes only. Image Credit: Bloomberg News

New Delhi: India's top court approved a 10-year payment plan for telecom companies to clear combined back-fees worth 1.4 trillion rupees ($19 billion), a ruling that may give cash strapped Vodafone Idea Ltd. some room to maneuver.

The Supreme Court on Tuesday rejected the 20-year payment timeline as proposed by Prime Minister Narendra Modi's administration and supported by telecom companies, but allowed the federal government to collect the amount in installments. The three-judge panel headed by Justice Arun Mishra said 10% of the dues must be paid in the first tranche.

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While the ruling is not the most desired option, it is still a relief for operators such as Bharti Airtel Ltd. and Vodafone Idea, given that the court had originally ordered the payments within three months. Vodafone is particularly struggling with mounting losses and more than $14 billion of debt. Billionaire Kumar Mangalam Birla, the chairman of the local joint venture with UK's Vodafone Group Plc, warned in December that the company was headed toward insolvency in the absence of aid.

Shares of Bharti Airtel gained as much as 6.6% after the verdict while Vodafone Idea was trading down 10% after an initial 25% plunge. Representatives for the companies declined to immediately comment.

"This is positive for Bharti Airtel and Reliance Jio and negative for Vodafone Idea," said Gurmeet Chadha, strategist at Complete Circle Consultants in Delhi. "Telecom is a gruesome business and when 5G comes you will have to pay more for spectrum. Eventually, unless Vodafone Idea raises significant capital or gets a strategic partner, we are headed for a duopoly."

Price war

Vodafone Idea and Bharti Airtel are the two non-state survivors of a brutal price war sparked by the debut of billionaire Mukesh Ambani's Reliance Jio Infocomm Ltd. in 2016. As the new entrant lured 380 million users in about three years with free calls and cheap data, rivals struggled. Many incumbents exited the market, merged or filed for bankruptcy.

The case that meandered through the Indian legal system for almost two decades saw the bill Vodafone Idea faces ballooning to $7.8 billion. Vodafone Idea has paid a little over $1 billion against its dues so far. Bharti, which now faces $5.9 billion in total payments, has cleared $2.4 billion. The government said in March that of the total demand worth 1.69 trillion rupees, 1.4 trillion rupees remains to be paid by all telecom companies, including those that have shut down or are under bankruptcy resolution.

Investors are awaiting Vodafone Idea's decision following the court ruling on whether the company finds it viable to continue operating in India, according to Complete Circle's Chadha. The company on Tuesday said in a separate statement it is selling its stake in a tower company for 40.4 billion rupees cash, part of which will go toward other dues.

"This 10-year rescue plan has averted an immediate bankruptcy for Vodafone Idea in India," said Arun Kejriwal, director at KRIS, an investment advisory firm in Mumbai. "But this will also force the promoters to present a long term plan as India is the fastest growing market in the world."