The Hindu Business Line : Telecom players want adjusted gross revenues norm changed

IN their first joint appeal to Union Communications Minister, Mr Arun Shourie, after calling a truce, the Cellular Operators Association of India (COAI) and the Association of Basic Telecom Operators (ABTO) have sought a change in the definition of adjusted gross revenues (AGR) that is used to calculate the annual licence fees payable by the operators.

In more or less identical letters written to the Minister, both the associations have noted that the present definition of AGR includes several revenue streams, which are unrelated to service activities of the telecom operators.

They include interest revenues, revenues from sale of handsets, interest and dividend income from investments, sale of capital goods and cost recovery from sharing infrastructure.

"These revenues are completely unrelated to the licence activity of the service providers and is irrational and unjustified to include the same for the purpose of calculating revenue share licence fees.

Furthermore, the AGR definition does not allow for deductions due to bad debts, waivers/discounts to subscribers, roaming charges, which is form of pass through revenues and port charges.

By not allowing deductions for these items, the DoT is violating the well-established principle that if any income is charged to a tax/levy, then the underlying expenses incurred to earn such incomes must also be allowed as deduction", they said.

The associations pointed out several anomalies in the definition that has been adopted by DoT and sought that they be rectified.

For one, they noted that income is considered on an accrual basis while deductible expenses are considered on an actual/ pass through basis. Both income and expenses should be computed on an actual basis.

"It is further submitted that this approach/definition of DoT is in conflict with the views of TRAI (Telecom Regulatory Authority of India ) which has consistently maintained that AGR should only include revenues from licensed activities.

The authority has maintained its position consistently in all its recommendations and we would like to endorse and support the position taken by the TRAI in this regard.

The definition should be exhaustive and not indicative as this could give rise to unnecessary disputes which would invariably be to the detriment of the licences," the associations said.

The existing licence fee structure for basic as well as cellular operators has been fixed at 12 per cent of the AGR for metro service areas and category A circles, 10 per cent for category B circles and 8 per cent for category C circles.

This is slated to be reduced from April 2004, when as part of a relief package for the industry, the licence fees for basic service providers, GSM cellular operators and CDMA mobile operators would be reduced by two percentage points. Further, the first and second GSM cellular licensees in all circles, except the metros, would get an additional two percentage point reduction in the licence fees for a period of four years.