DH Deciphers | Telecom industry as Golden Goose: What an Idea, sir ji?

There is turmoil in the telecom sector following the Supreme Court order to telcos to pay up by March 17 their dues, amounting to Rs 1.47 lakh crore for the entire industry (including players that have gone out of business). Over a third of that amount – a whopping Rs 53,000 crore, is owed by Vodafone-Idea -- as per the calculation of the Department of Telecom (DoT). That calculation – based on companies’ Adjusted Gross Revenue (AGR) -- is at the heart of a long-standing dispute and, as the DoT piles up pressure on companies to pay up, could lead to Vodafone-Idea going out of business in India.

So, what is the AGR?

When the telecom sector was liberalised under the National Telecom Policy in 1994, the government issued licences to companies based on a fixed licence fee. After the telecom companies complained that the fixed licence fee was too high, in 1999, the government offered to migrate the companies to a ‘revenue sharing’ model, to which the telcos agreed. The calculation of a company’s revenue to determine the ‘revenue share’ of the government was to be based on what’s called the Adjusted Gross Revenue (AGR).

If the telcos agreed to it, then what’s the dispute?

As per the revenue sharing model, the telcos are required to pay licence fee (LF) and spectrum usage charges (SUC). These fees are based on the AGR. The dispute is about how the AGR is to be calculated. The telcos say it should be based on only the revenues earned by them from telecom operations; the DoT calculates AGR on the basis of not only the companies’ telecom revenues but also their non-telecom earnings from, say, sale of assets, deposit interest, etc.

All this started in 1999. Why hasn’t it been resolved even in 2020?

The legal battle over AGR started in 2005 when the Cellular Operators’ Association of India (COAI) contested it in the Telecom Disputes Settlement and Appellate Tribunal (TDSAT). In 2015, the TDSAT ruled in favour of the telecom companies and held that AGR should include all receipts except capital receipts and revenue from non-core sources, such as profit on the sale of fixed assets, rent, miscellaneous income, dividend and interest. But the DoT appealed against the ruling in the Supreme Court. On October 24, 2019, the Supreme Court set aside the TDSAT order and upheld the DoT’s definition of AGR. The telcos had to pay up.

What does the SC ruling mean for the telcos?

The SC ruling meant that a total of 15 telcos -- including the existing Airtel, Vodafone, Jio, BSNL/MTNL and the ones that have gone out of business, such as Reliance InfoComm, Tata Teleservices, Aircel, etc -- had to pay Rs 1.42 lakh crore to the government, which includes unpaid licence fee, spectrum usage charges, interest and penalty. The SC has set March 17 as the deadline for the dues to be cleared.

But we hear that even non-telcos owe the DoT a load of money. Why?

The SC ruling also hit some non-telecom firms like GAIL, Power Grid Corporation of India and others who do not sell telecom services. They have been deemed liable to pay the DoT for holding licences and spectrum for their internal communications and signalling. And they are liable to pay these fees based on their entire revenue! Thus, these companies owe DoT even more than the telcos do – Rs 2.65 lakh crore, with GAIL alone owing some 65% of that amount. However, they have the option to approach the court for legal recourse.

What are the telcos saying?

Airtel, which has to pay Rs 35,586 crore, deposited Rs 10,000 crore with the DoT on Monday and has promised to pay the remaining amount by March 17. Jio has paid the piddling Rs 195 crore due from it. Voda-Idea, which has to pay Rs 53,038 crore has paid Rs 2,500 crore and has said it will pay another Rs 1,000 crore later this week.

But I hear that Voda-Idea will have to shut down if it is forced to pay up. Is that true?

Besides the AGR dues, Voda-Idea's gross debt, excluding lease liabilities, stood at Rs 1,15,850 crore on December 31, 2019, including deferred spectrum payment obligations of Rs 88,530 crore due to the government. Meanwhile, the company’s net loss in the quarter ended December 31, 2019, was Rs 6,438.8 crore.

The company’s lawyer Mukul Rohatgi has said that if the government encashes its bank guarantees, it will have to shut shop. On Monday, the SC rejected Voda-Idea’s appeal to accept part payment and to urgently direct the DoT not to encash its bank guarantees. Voda-Idea chairman Kumar Mangalam Birla met Telecom Secretary Anshu Kumar on Tuesday.