In a major blow to telecom service providers, a recent Supreme Court order has in effect allowed Department of Telecom to collect licence fee from the operators on revenues earned from non-telecom activities.
The apex court said that the Department of Telecom's decision on charging licence fee on the gross revenue earned by the companies cannot be questioned.
“We, therefore, hold that the TRAI and the (Telecom Dispute Settlement Appellate) Tribunal had no jurisdiction to decide on the validity of the definition of Adjusted Gross Revenue (AGR) in the licence agreement and to exclude certain items of revenue which were included in the definition of AGR in the licence agreement between the licensor and the licensee,” the Supreme Court said.
At present, operators pay between 6 and 10 per cent of their annual revenues as licence fee to the Government.
According to the DoT regulation, revenues earned by the operators from activities such as handset sales, interest earned from bank deposits, sale of assets and other corporate receipts are also included in the amount on which the revenue share is calculated. The telecom industry protested against the DoT policy and filed a petition with TDSAT.
AGR definition
In July 2006, the TDSAT had passed an order that revenue realised by the operators from activities beyond the licence will be excluded from AGR. This meant that income earned by the operators from non-telecom activities, like interest earned on deposits and revenue from mobile handset sales, would not be included for calculating the licence fees payable to the Government.
Setting aside the TDSAT order, the Supreme Court said, “The definition of Adjusted Gross Revenue in the licence agreement is without jurisdiction and is a nullity…”
The apex court said that the telecom regulator and the telecom tribunal have no jurisdiction to decide on the validity of the terms and conditions of the licence including the definition of AGR incorporated in the licence agreement.
The court order is bad news for operators who will now have to pay several thousands of crores of rupees to the Department of Telecom, as licence fee will be calculated on a higher revenue base. Also, they will have to pay dues since 1999.
Relief
However, what may come as a small relief to the operators is that the apex court has allowed them to file an appeal before the TDSAT in case they want to question the amount demanded by the DoT. “If the demands have been raised, we grant two months' time to the licensees to raise the dispute before the Tribunal against the demands; and during this period of two months, the demands will not be enforced,” the Supreme Court said in an order dated October 11.
Mr Rajan S. Mathews, Director General, Cellular Operators Association of India, said: “This order is negative for the telecom industry as it puts additional financial burden on us. The Supreme Court has in effect told us that neither we nor the TDSAT can question what all can be included in AGR but we can only question the computation of the charges.”