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Economy

Topic: General Studies 3:

Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Infrastructure: Energy, Ports, Roads, Airports, Railways, Telecommunications etc.

Adjusted gross revenue (AGR) Crisis

Context

In Oct 2019, the Supreme Court had directed telecom service providers to pay the pending dues –aggregating to over Rs 1.47 lakh crore – to the government by 23rd January 2020

The decision impacts over 15 telecom firms, both current and defunct, but those with the highest liabilities are Vodafone-Idea Ltd (Rs 53,038 crore), Airtel (Rs 35,586 crore) and Tata Teleservices (Rs 13,823 crore)

Brief History of the issue:

1994 – Telecom sector was liberalised under the National Telecom Policy under which licenses were issued to companies in return for a fixed license fee.

1999 – The government gave an option to the licensees to migrate to the revenue sharing fee model, so as to provide relief from high licence fees .

Under this, telecos 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).
The LF and SUC were set at 8 per cent and between 3-5 per cent of AGR respectively, based on the agreement.

Department of Telecom’s(DOT) Stand	Telecos Stand
AGR includes all revenues (before discounts) from both telecom and non-telecom services	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.

2005– Cellular Operators Association of India (COAI) challenged the government’s definition for AGR calculation.

2015 – TDSAT (Telecom Disputes Settlement and Appellate Tribunal) ruled in favour of Telecos

Oct 2019 – Supreme Court set aside TDSAT’s order and upheld DOT’s definition of AGR

Jan 2020 – Supreme Court has accepted petition of Telecos request to extend the deadline fixed at 23rd Jan 2020 to pay up the dues (but not on the definition of AGR)

Why the definition of AGR is important?

Because it has revenue implications for both government & Telecos.

For government – it means increase in its revenue collection which helps maintaining fiscal deficit and undertake welfare measures
For Telecom Operators– Added financial burden especially at a time where their assets ae over leveraged and profits are under pressure from severe competition (after Jio’s entry)

Implication of the Supreme Court’s 2019 Order

On Telecom companies: Increased liability means losses in their operation in short term. It also erodes the telcos’ net worth impacting retail investors
On Telecom Sector: It could potentially lead to Vodafone Idea’s exit due to its weak financial position & its inability to pay its dues. This leads to the creation of a Airtel-Jio duopoly which may not augur well for the competitiveness in the sector and thus the government’s vision of Digital India.
On Banking Sector: AGR issue has triggered panic in the banking industry, given that the telecom sector is highly leveraged. Vodafone Idea alone has a debt of Rs 2.2 lakh crore. mutual fund industry having exposure to telecom sector will also see erosion of value.
On Consumers: Competition in the sector will always lead to better prices and better technology. Possibility of creation of duopoly will impact the competition in negative manner.

Way ahead

Government should realize the consequences of the failure/weakness of the sector on the broader economy & on its long term vision of Digital India.
Therefore, instead of being inflexible on AGR for short term revenue gain, it should accommodate the interests of the telecom operators (like extension of deadline, foregoing interest on dues) so that long term vision is not compromised

Connecting the Dots

Twin Balance sheet problem
Which other sectors have duopoly or oligopoly structures?

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