Editorial

Supreme Court ruling on AGR may prove a death blow for telcos

| Updated on November 02, 2019 Published on October 29, 2019

The Centre must step-in immediately to find a solution; else, the digital revolution unleashed across the country could come to a grinding halt

The Supreme Court’s ruling on Adjusted Gross Revenue has plunged the telecom sector into a severe financial crisis. Incumbent operators, already reeling under a debt of nearly ₹4 lakh crore, will now be asked to pay ₹1.3 lakh crore of dues to the Exchequer. The apex court has relied heavily on the migration agreement offered to the telecom operators in 1999, wherein the Centre converted the upfront money committed by the mobile players to a licence fee in the form of an annual revenue share. The revenue share was to be calculated on the AGR. According to the operators, the Department of Telecom changed the definition of AGR in 2002-03 to include non-telecom income such as foreign exchange gains and interest earned from bank deposits.

 

The Supreme Court has held that the DoT was clear from day one on what would constitute AGR; therefore, it was unfair on the part of the operators to dispute the definition after having taken benefit of the migration package. The operators have been asked to pay the entire dues accumulated over the last 15 years, with interest and penalty. The biggest impact will be on Vodafone Idea, followed by Airtel, as they will have to pay between ₹35,000-40,000 crore each.

The ruling is questionable on two counts. First, it overlooked the fact that the DoT changed the definition of AGR without holding any consultations with the industry. Second, it has expanded the definition of AGR further by including items such as capital receipts from sale of shares, scrap and even insurance. This could tantamount to operators paying licence fee on the same income, multiple times. The court has also missed the fact that the operators are now back to paying upfront fees for the spectrum since 2010, when the Centre started to allocate airwaves through an auction. The very basis on which operators agreed to pay revenue share in 1999, has therefore changed.

The operators have to share part of the blame, as they did not push policymakers to shift to an auction-based mechanism for allocation of spectrum much earlier. Instead, they continued to enjoy cheap spectrum allocated through subscriber-based criteria even as they parked the dispute over AGR with the courts. These tactics, with a short-term view, have come to haunt them now. The Centre must step-in immediately to find a solution; else, the digital revolution unleashed across the country could come to a grinding halt. Of the 16 operators against whom DoT had raised demand for payment of AGR dues, 11 have already shut operations. Two are struggling public sector undertakings and two are debt-laden private operators. The decision to set up a panel to review the financial stress in the telecom industry is a good first step. But if the Centre wants to really help revive the sector, it has to find a way to reduce its financial burden.

Published on October 29, 2019
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