Adjusted Gross Revenue to be Paid in 10 Years

• 02 Sep 2020

Why in News

Recently, the Supreme Court of India allowed telecom companies (telcos) 10 years’ time to pay their Adjusted Gross Revenue (AGR) dues to the government.

Adjusted Gross Revenue

• AGR is a fee-sharing mechanism between the government and the telcos who shifted to the 'revenue-sharing fee' model in 1999, from the 'fixed license fee' model.
  
  • In this course, telcos are supposed to share a percentage of AGR with the government.

Key Points

• 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 steep 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 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.
  • The definition of AGR has been under litigation for 14 years. In 2005, Cellular Operators Association of India (COAI) challenged the government’s definition for AGR calculation.
  • However, DoT argued that AGR includes all revenues 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 the sale of any investment or fixed assets.
  • In 2015, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) 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, the Supreme Court upheld the definition of AGR as stipulated by the DoT in October 2019.
    
    • As per the government definition, AGR includes rental receipts, dividend income and income from any other-activity arising out of the telecom licence the company has.
    • Later on, the Court rejected a 20-year payment timeline proposed by the central government and supported by telecom companies. Instead it has given 10 years’ time to repay the AGR dues.
• Directions Issued by Court:
  
  • The telecom operators would make the payment of 10% of the total dues as demanded by the Department of Telecom by 31^st March 2021.
  • The yearly instalments would commence from 1^st April 2021 up to 31^st March 2031. The instalments would be paid by 31^st March every year.
  • In the event of any default in making payment of annual instalments, interest would be levied as per the agreement along with penalty and interest on penalty automatically without reference to court.
    
    • Besides, it would be punishable for contempt of court.
  • Compliance with the court order should be reported by the telcos and the telecom department every year on 7^th April.
  • The sale of spectrum by telcos facing insolvency proceedings shall be decided by the National Company Law Tribunal (NCLT).
• Issues Involved:
  
  • The definition of AGR has been such a contentious issue because it has huge financial implications for both telcos and the government.
    
    • It was estimated, after the SC’s 2019 judgment, that the telecom operators owe the government about Rs. 92,000 crore in back charges, interest and penalties on license fee alone.
    • The October 2019 judgment had pushed many telcos on the verge of bankruptcy.
  • While the government has been deprived of the extra revenue, the financial implications for telecom companies — who now have to pay overdue amounts piled up for years — are serious too.
    
    • Especially at the current juncture, when profits for telcos are under pressure from severe competition and the falling average revenue per user.

Way Forward

• To enhance the growth of the telecom sector, improve the quality of service, and generate resources for the telcos, a new infrastructural policy is the need of the hour.
• The government needs to provide an enabling environment for telecom operators. In order to achieve that, a long-term vision plan must be made accordingly.
• Enhanced accessibility of the broadband services will enable the digital empowerment of India, hence adequate steps must be taken by the government to strengthen the overall telecom sector.

Source: TH