We have been hearing about the AGR dues for a long time now and one after another ruling of the supreme court on the AGR issue. Let’s study this in detail today and find out the reason behind the whole chaos.
What is AGR
The telecommunication sector was liberalised under the Telecom Policy of 1994, which included issuing licenses to telecom companies for which the telecom companies had to pay a fixed license fee. However, the department of telecommunication (DoT) attracted a lot of controversy due to high license fee and steep structure. Owing to disagreements and failure of the telecom policy of 1994 a new policy was introduced.
A new telecom policy in 1999 was presented which allowed the migration of the licensees from a Fixed Licence fee Regime to a Revenue Arrangement Scheme (w.e.f. 1/08/1999). Under the new scheme licence fees, was collected as a proportional tax on the service provider’s revenue. Previously, there were two operators in each circle, and the 1999 Policy allowed the government as the third operator in the circle.[1]
This model is called the revenue sharing model. The revenue amount used to calculate this revenue share is called Adjusted Gross Revenue (AGR) and will include the annual license fee (LF) and spectrum usage charges (SUC).
Now, the dispute has mainly been on the definition of AGR while the government believes AGR should include all the revenue earned by the company from providing telecom services as well as from non-telecom sources as well such as the sale of an asset or interest earned. The companies have expressed concerns and are of the viewpoint that AGR should only include revenue generated by providing core services and revenue from non-telecom services should be kept out of it.
The long-lost battle and October 2019 verdict
The government and telecom companies were always on edge due to dispute in the definition of AGR. In 2005, the Cellular Operators Association of India (COAI) challenged the government definition of calculating AGR. This dispute over the interpretation of adjusted gross revenue (AGR) between the Department of Telecommunications and telecom operators took an eventful turn in 2007-08. In 2007-8, Telecom Disputes Settlement and Appellate Tribunal (TDSAT) had narrowed the scope of AGR. Following this, the then UPA government went into an appeal.[3] The saga continued with various twists and turns including the Union Telecom Minister A. Raja who was involved in several controversies; DoTs appeal etc. till 2015. In 2015, the TDSAT stayed with telecom companies and favoured Telecom companies definition of AGR and held that AGR should include all receipts except capital receipts and revenue from non-core sources such as rent, profit on the sale of fixed assets, dividend, interest and miscellaneous.[3]
However, setting aside TDSAT’s order, the Supreme Court in a landmark judgement on 24th October, 2019 upheld the DoT’s definition of Adjusted Gross Revenue which includes revenue from all activities; core and non-core and ruled in favour of the government. And ordering telecom companies to pay 1.47 trillion[2] worth of dues to the government. 15 companies were directed to pay the dues out of which only 3
companies are in operation Vodafone Idea, Bharti Airtel and Jio. The rest have either exited or are undergoing bankruptcy proceedings such as Aircel and Reliance Communication.
However, the story doesn’t end here. Now after the court’s decision, the DoTs also made claims on some other public sector government-owned companies Think — Power Grid Corporation of India Ltd, GAIL India, GNFC, and Oil India. These companies are not precisely like private sector companies neither do they operate in the telecom sector, but they did own some telecom assets, and they did make some money leveraging said assets.[4]
The Supreme Court intervened and told the DoT “Our judgment could not have the basis for demands on PSUs," the bench observed. "We would request you (DoT) to withdraw this otherwise we will take strict action. This is wholly and totally impermissible," the court said while referring to the demand raised by DoT.[5]
Let’s come back to telecom companies, after much pleading the Supreme Court has asked companies to come up with a detailed plan on how to clear their dues including guarantee from the owners.
The Jio Angle
Soon after the Supreme Court’s October verdict shares of Vodafone Idea fell by over 20% and at the same time Bharti Airtel fell but regained value at the end of the day. News of Vodafone Idea filing for bankruptcy flew across the country while management denied any hint of truth. Reliance Jio and Bharti Airtel can shield themselves and soften the blow due to their strong balance sheets.
Jio has been an unintentional area of interest in this whole saga. Jio started late in the telecom sector as such the dues of Jio are negligible in comparison to its rivals.
With the whole AGR issue, people are losing trust in the market and are rethinking their choice of the service provider and want a stable option. People are particular about their phone numbers and would want to hold on to it even if it means porting the number. With Jio booming in the market with its high-end services at low prices and attractive incentives, it’s already a centre of attention among the consumers. Jio’s brilliant go-to-market entry has already gained them a huge amount of subscriber base, and people prefer Jio than other companies. With the flexibility of collecting dues in a staggered manner in 2-3 years, Jio will also gain benefit along with other telecoms’ and would be able to manage its cash flows in a better way. Thus, Jio era continues!
