Mains Article

Taming the Telecom Crisis [Mains Article]

The Supreme Court’s judgement on repayment of dues regarding Adjusted Gross Revenue is hanging over the head of telecom firms and the department of telecommunications (DoT). The firms are seeking some relief but there is fairly less probability that government will reduce the penalty and interest that that telecom firms owe in AGR dues.
By IT's Mains Articles Team
March 12, 2020

Contents

  • Introduction
  • Adjusted Gross Revenue
  • Background
  • Bone of contention
  • Developments till date
  • Supreme Court’s ruling
  • Significance
  • Crisis in telecom Sector
  • Companies seeking relief
  • Way Forward
  • Conclusion

Taming the Telecom Crisis

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Introduction:

There has been a long standing dispute between the telecom firms and the government of India on the definition of Adjusted Gross Revenue and hence the revenue to be paid to the government.

Adjusted Gross Revenue (AGR):

  • AGR is the usage and licensing fee that telecom operators are charged bythe Department of Telecommunications (DoT).

Background:

  • 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.
  • To provide relief from the fixed license fee, the government in 1999 gave an option to the licensees to migrate to the revenue sharing fee model.
  • Under this, mobile telephone operators were required to share a percentage of their adjusted gross revenue (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 telecom companies.
  • The LF and SUC were set at 8 % and between 3-5 % of AGR respectively based on the agreement.

Bone of contention:

  • 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.
  • 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.

Developments till date:

  • In 2005, Cellular Operators Association of India (COAI) challenged the government’s definition for AGR calculation.
  • 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.
  • However, setting aside TDSAT’s order, Supreme Court on October 24, 2019 upheld the definition of AGR as stipulated by the DoT.

Supreme Court’s ruling:

  • The Supreme Court on 24 October 2019 had passed a judgement under which it upheld the DoT’s definition of AGR and ordered telecom firms to repay levies based on that definition, as well as interest on the principal amount and the penalty.
  • The liabilities included a principal amount for the 13-year period ended 31 March 2019 and interest up to February 2020.
  • The next hearing of the case is on 17th March, 2020.

Significance:

  • The definition of AGR has a huge financial implication for both Telcos and the Government.
  • The revenue shared by Telcos with the government goes into the consolidated fund of India.
  • It was estimated, after the SC’s judgment 2019, that the telecom operators owe the government about ₹92,000 crores in back charges, interest and penalties on license fee alone.
  • While the government has been deprived of the extra revenue, the financial implications for telecom companies are serious especially at the current times when the profits for Telcos are under pressure from severe competition and the falling ARPUs (average revenue per user).

Crisis in telecom Sector:

  • India’s telecom sector has been perennially under crisis for the last two decades.
  • Regulatory blunders, flawed policymaking influenced by corporate lobby groups and unethical tactics by the telecom companies with a myopic view have ensured that 25 years after the first mobile call was made, the sector is in complete disarray.
  • The entry of Reliance Jio created a huge disruption as it unleashed 4G services, with free voice calls and data services priced at a massive discount.
  • While the telecom sector seems to be monopolised and loss making for other firms apart Jio, questions have been raised about the regulatory actions, that seemed to be one-sided.

Companies seeking relief:

  • While the government’s initial estimate for Vodafone Idea’s and Bharti Airtel’s dues were over 50,000 crores and around ₹35,000 crores respectively, a self-assessment by the two firms pegged their dues sharply lower at ₹21,533 crores and ₹18,004 crores.
  • Vodafone Idea has paid around ₹3,500 crores of its dues while Bharti Airtel has paid the entire amount of ₹18,004 crores it has self-assessed.
  • Reliance Jio is the other telecom firm which has paid all its AGR dues of ₹195 crores.
  • The firms are demanding an extension of the timeframe to pay dues on adjusted gross revenue (AGR) that the firms owe to the government.
  • The telecom firms have also been pushing for lowering the reserve price for spectrum in the proposed 5G spectrum auction.
  • A mechanism for providing cheap debt capital through a special purpose vehicle for enabling 5G auctions is also being discussed.

Way Forward:

To revive the Telecom sector, the following interventions are necessary:

  • The reserve price for the spectrum needs to be brought down to match the current market sentiments. The very idea of conducting an auction is to allow market forces to determine the price, so there is no merit in keeping the last-discovered price as the floor price in next round of spectrum.
  • The bidding policies must be fair to ensure there is no cartelisation while bidding.
  • A revamp in the entire regulatory and policymaking apparatus is needed to make it agile and in tune with the needs of a digital nation.
  • The government must take steps to enable Bharat Sanchar Nigam Ltd to act as a strong counter to the private sector operators. BSNL must be unshackled from political and corporate interference so that it can take quick decisions on things like buying equipment.
  • The incumbent operators should show a long-term thought leadership both on the business aspects as well as policy advocacy. The incumbent operators have spent most of their energies in fighting regulatory battles instead of creating a differentiated consumer strategy.

Conclusion:

  • The affordability of faster Internet services has led to the growth of entrepreneurial spirit in India, digitalisation of banking and numerous other services. In order to cure the financial health of the Telcos, the government must put forward plans to set up new anti-trust laws to prevent monopolisation and/or cartelization in the telecom sector. The Telecom firms must also abide in effective management, and long term vision and follow consumer friendly and ethical practices.
[Ref: Hindu, IE, Live Mint, Bussiness Line]
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