In a massive setback for Bharti Airtel, Vodafone-Idea and Reliance Communications, the Supreme Court on Thursday rejected the telecom companies' definition of Adjusted Gross Revenue (AGR).
The government and the telecom companies were locked in a legal battle in the 14-year-old case over the definition of AGR, on the basis of which the telecom department calculates levies payable by companies.
With the judgement, the SC has exposed the incumbent telcos to potential demands by DOT of up to Rs 1.33 lakh crore.
The court has held that all revenues, except for termination fee and roaming charges, will be a part of the AGR. Telcos had argued that non-telecom, non-core revenues should not be a part of the AGR.
The computation of AGR has been a legacy issue since 2005, with both the DOT and operators battling across TDSAT, HCs and SC for their respective views on the same.
Telcos had said that non-telecom revenues which are disconnected with the grant or operation of licence such as rent, dividend income, interest income, profit from the sale of fixed assets should be excluded from the definition of AGR.
Mahesh Uppal, director of Com First (India) Private Ltd, a consulting company, said the Supreme Court ruling is a massive setback for telecom companies and a sign of weakness in the government’s licensing regime.
This definition was critical as the licence fee and spectrum usage charges are computed as a percentage of the AGR. The licence fee is computed and paid at 8 percent of the AGR by the telcos to the govt. Similarly, SUC is computed and paid at 3 percent of the AGR by the telcos.
The amount that had been claimed by the DOT as per its understanding of the AGR was Rs 1.33 lakh crore — Rs 92,000 crore as licence fee and Rs 41,000 crore as SUC.
The amount of Rs 92000 crore claimed by DOT as licence fee includes the principal amount, interest and penalties. Of the Rs 92,000 crore, Rs 21,682 crore is sought from Bharti Airtel, Rs 28,300 crore from Voda-Idea, Rs 16,500 crore from RCom, Rs 2100 crore from BSNL and Rs 2,537 crore from MTNL.
Similarly, the amount of Rs 41000 crore sought by the DOT as spectrum usage charge includes the principal, interest and penalties. Of the Rs 41,000 crore, Rs 22,943 crore is sought from Bharti, Rs 11,000 crore from Voda-Idea and Rs 3,533 crore from RCom.
Importantly, SC has also rejected their arguments on interest and penalties. It has held that telcos will be liable to pay all 3 components — principal, interest, penalties — of the license fee and SUC sought by the DOT.
With the SC's judgment prescribing the definition of the AGR, incumbent telcos Bharti, Voda-Idea, R.Comm are exposed to the demands being made by the DOT for payment as per the earlier calculations.
"We are disappointed by the verdict of the Hon’ble Supreme Court. The definition of AGR has been a long-standing dispute between the DoT and the Telecom Service Providers (TSPs) dating to 2005... of the 15 old operators impacted by the order, only two private sector operators remain in service today. The government must review the impact of this decision and find suitable ways to mitigate the financial burden on the already stressed industry," said an Airtel spokesperson.
The person, however, said that the company will be able to comment further only after reviewing the order in detail.
Vodafone-Idea, reacting to the judgement, said that the verdict has significantly damaging implications for India’s telecom industry, which is already reeling under huge financial stress.
A significant investment of several billion dollars has been made in creating world-class networks. Today’s order has huge impact on two private operators while most of the other impacted operators have exited the sector," it said.
The company has urged the government to engage on the matter and find ways to mitigate financial stress.