In a blow to the telecom industry facing severe financial stress, the Supreme Court on 16 January 2020 rejected the review petitions moved by Bharti Airtel, Vodafone Idea and Tata Teleservices against its October 2019 order on payment of dues linked to adjusted gross revenue (AGR). Telcos, contemplating a curative plea, will have to together pay an estimated Rs 1.47 trillion in AGR dues that include penalties and interest on penalties by January 23. The order, expected to help the government in plugging its widening fiscal deficit, will also be applicable for many companies which have either sold out or shut their business.
  1. A three-judge bench comprising Justices Arun Mishra, S A Nazeer and M R Shah, in an in-chamber hearing on 16 January 2020, did not find merit in the review plea and dismissed it. A curative plea will be another attempt for the telcos to find relief after the dismissal of a review petition.
  2. It is not immediately clear as to what the latest verdict of the top court would mean for a host of non-telecom companies (with internet service provider or ISP licences) which were told to cough up around Rs 2.97 trillion in AGR dues before the same deadline. 
  3. The non-telcos facing the huge AGR bill have had a negligible presence in the communication space but their dues have been calculated based on their overall revenues.
  4. The genesis of the dispute between the industry and DoT was the definition of AGR, which is the revenue used to calculate the licence fee and spectrum charges paid by telecom companies to the government
  5. In the October order, the Supreme Court upheld the government definition of AGR, implying non-core revenues such as rent, dividend and interest would also be part of the calculation.
  6. Disappointed with the decision, Bharti Airtel, which is facing an estimated AGR demand of Rs 35,586 crore said it was evaluating filing a curative petition, which is the last judicial resort available for redressing grievances.
  7. The industry continues to face severe financial stress and the outcome could further erode the viability of the sector as a whole. The industry needs to continue to invest in expanding networks, acquiring spectrum and introducing new technologies like 5G.
  8. Vodafone Idea, which has to pay out a total AGR dues of Rs 53,038 crore said, ‘’the company is exploring further options, including filing of a curative petition.’’
  9. Tata Teleservices, which sold its consumer business to Airtel, has to pay Rs 13,823 crore in AGR dues. Around 15 telcos together need to cough up Rs 1.47 trillion in AGR dues.
  10. The Cellular Operators Association of India (COAI) had in 2005 filed the first case, challenging the government’s definition on calculation of AGR. 
  11. It had contended that the components of AGR, which that the government was trying to include, were contrary to the Telegraph Act and the recommendations made by the Telecom Regulatory Authority of India (TRAI).
  12. While the industry has already paid 85 per cent of the demand raised by the DoT, the remaining 15 per cent has stayed disputed for a very long time with the mobile companies getting favourable judgments in various legal forums, including Telecom Disputes Settlement and Appellate Tribunal (TDSAT), High Courts and even Supreme Court.
What is it?
  1. The telecom sector was liberalised under the National Telecom Policy, 1994 after which licenses were issued to companies in return for a fixed license fee
  2. To provide relief from the steep fixed license fee, the government in 1999 gave an option to the licensees to migrate to the revenue sharing fee model.
  3. Under this, mobile telephone operators were required to share a percentage of their AGR with the government as annual license fee (LF) and spectrum usage charges (SUC). License agreements between the Department of Telecommunications (DoT) and the telecom companies define the gross revenues of the latter. 
  4. AGR is then computed after allowing for certain deductions spelt out in these license agreements. The LF and SUC were set at 8 per cent and between 3-5 per cent of AGR respectively, based on the agreement.
  5. The dispute between DoT and the mobile operators was mainly on the definition of AGR. The DoT argued that AGR includes all revenues (before discounts) from both telecom and non-telecom services
  6. The companies claimed that AGR should comprise just the revenue accrued from core services and not dividend, interest income or profit on sale of any investment or fixed assets.
  7. In 2005, Cellular Operators Association of India (COAI) challenged the government’s definition for AGR calculation.
  8. In 2015, the TDSAT (Telecom Disputes Settlement and Appellate Tribunal) stayed the case in favour of telecom companies and held that AGR includes 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 income.
  9. However, setting aside TDSAT’s order, Supreme Court on October 24, 2019 upheld the definition of AGR as stipulated by the DoT.