Telcos Will Have to Pay Rs 92,000 Crore to Government as SC Rules on AGR Definition

There has been a long-ongoing tussle between the government and the telecom operators about the definition of Adjusted Gross Revenue (AGR). Now there has come a final verdict from the Supreme Court on this matter, and as reported by ET Telecom, the apex court has ruled in favour of the government. But, this has far-reaching implications for the telecom sector and the companies who are already financially burdened. The legal tussle on AGR between the telecom operators has been persisting in the industry for more than 14 years. But, finally Supreme Court put an end to the battle, but the chips have not fallen in favour of the telecom operators. As now they will have to shell out a massive amount as part of AGR in the name of license fees and other charges asked by the government. Here is what the new decision entails.

 

Tussle Between Telecom Companies and the Government

The bench of Supreme Court which was led by Justice Arun Mishra, A.A. Nazeer and M.R Shah, gave the ruling on the matter. As per the ongoing matter, the telecom operators had been fighting for the definition of AGR saying that the AGR should constitute of the revenue which comes from the telecom services only and not all the auxiliary services that the telecom operators provide. The telcos wanted that the license fees, and spectrum usage charges (SUC) should be calculated on the AGR, which is considered to come only from the core telecom services and not the non-core services. However, the government had different opinions and was stuck on the issue that the AGR should be calculated, keeping in mind the entire revenue that the telecom operator generates, including non-core services as well. This is what the Supreme Court has now ruled in favour of.

Implications of New Supreme Court Decision

Now the main implication of this new decision will be seen in a multitude of variables. The first effect of the decision was visible quickly in the stock market as the shares of the telecom operators fell sharply. Vodafone Idea plunged 17.5%, whereas, Bharti Airtel shares fell over 6%. On the matter, Bharti Airtel said that it was disappointed by the ruling of the Supreme Court and that it would hurt the sector even more. An Airtel spokesperson said in a statement Thursday that the decision has come in a time where the industry is under deep financial stress, and this decision could further weaken the viability of the sector. Analysts are of a similar view.

Experts Predict Grim Future for Telecom Industry

Prashant Singhal, Emerging Markets, Technology, Media and Telecom Leader, EY India also agreed to these thoughts and said that the demand of Rs 92,000 crore would dampen the sentiment of telecom operators. As part of this demand, Bharti Airtel will have to pay Rs 21,682 crore, and Vodafone Idea will have to pay Rs 28,308 crore. For Reliance Jio, the amount is just Rs 13 crore as it is a new entrant in the industry. Currently, the telcos pay 3% of AGR as spectrum charges and 8% of AGR as license fees.

Rajan Matthews of Cellular Operators Association of India (COAI) also said about this decision, “With over 1.19 billion subscribers, the telecom sector is a key contributor to the Indian economy in terms of consumer benefit, employment, revenue generation and contributes 6.5% to the GDP. The sector has the lowest tariffs in the world backed by the investment of over Rs 10 lakh crores in setting up world-class mobile networks over the last 20 years but is going through one of its most disruptive phases.”

While the total dues are of Rs 92,000 crore, it is quite possible that the government would only be able to extract half of it from the telecom operators. Whereas, the telecom companies have asked a minimum of six months to pay up these dues.

Arpit Sharma

Arpit spends his day closely following the telecom and tech industry. A music connoisseur and a night owl, he also takes a deep interest in the Indian technology start-up scene and spends rest of his time spilling poetry and stories on paper.

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Arpit Sharma