Telecom Companies and AGR Issue
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Telecom Companies and AGR Issue

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Telecom Companies and AGR Issue

Why in News?:

Telecom companies, including Bharti Airtel and Vodafone Idea, have urged an open court hearing of their petitions seeking a review of a Supreme Court judgment upholding the recovery of past dues amounting to 1.47 lakh crore rupees from them.

Background:

On October 24, in a strongly-worded order, the Supreme Court of India upheld the DoT’s interpretation of AGR, which came as a huge blow to telecom service providers.

Following the order, the telcos are now staring at dues of an estimated Rs 1.4 lakh crore, which needs to be paid to the government within three months.

Why the Court had upheld DOT’s move?-

Observations made by the Court:

The telecom sector had long reaped the fruits of the Centre’s liberalized mode of payment by revenue sharing regime.

The sector has benefited immensely under the scheme as apparent from the gross revenue trend from 2004 to 2015.

But, the service providers had failed to fulfill their obligations to the government and raised frivolous objections.

The debate over the definition of AGR:

The definition of AGR has been under litigation for 14 years.

The Telecom operators earn revenue from the both core (Telecom Services) as well as non-core (Sales of Assets, sales of Mobile Handsets, Interest earned from Bank’s deposits, etc.) activities.

The controversy arose on account of the difference between the Government and the Telecom Operators as to what constitutes the AGR. 

While telecom companies argued that it should comprise revenue from telecom services, the DoT’s stand was that the AGR should include all revenue earned by an operator, including that from non-core telecom operations.

The AGR directly impacts the outgo from the pockets of telcos to the DoT as it is used to calculate the levies payable by operators. Currently, telecom operators pay 8% of the AGR as license fee, while spectrum usage charges (SUC) vary between 3-5% of AGR.

Meaning of AGR:

The AGR basically refers to the total revenue earned by the Telecom companies in India. The calculation of the AGR is considered to be significant because the AGR is in turn used to calculate the license fee and Spectrum Usage Charge (SUC) which the telecom operators are required to pay to the Government. 

Hence, the way the AGR is calculated becomes quite important for the Telecom Operators since it affects their overall revenues.

Underlying Issues:

The industry’s debt currently stands at about Rs 4 lakh crore.

Due to intense competition from free voice and cheap data, the gross revenue of the telecom industry had fallen between 2017-18 and 2018-19.

Currently, the price of data for the customer at an average of Rs 8 per GB is almost the lowest in the world.

Also, the average revenue per user per month has declined from Rs 174 in 2014-15 to Rs l13 in 2018-19.

The other challenges include- lack of fixed-line penetration, high right-of-way costs, current tariff system, deployment of 5G, etc.

Demands By the Sector:

Reduction in spectrum usage charges and the Universal Service Obligation Fund levy.

Deferment of Spectrum Auction Payment that is due for the next two years, i.e., 2020-21 and 2021-22, to ease the cash flows in the industry.

Viable pricing for voice and data, which falls in the realm of Telecom Regulatory Authority of India (TRAI).

Telecoms demand that TRAI must prescribe a minimum charge for voice and data services to ensure the long-term viability and robust financial health of the sector.

The TSPs also claim that a large amount of input tax credit is available to their credit in government accounts. They request that it must be adjusted against future government levies so that their distress could be eased for now.

Implications of the Supreme Court Verdict:

Impact on Telecom Sector:

The Telecom Sector is already reeling under higher debt levels of almost around Rs 7 lakh crores and hence the recent SC judgment is set to put further burden on them. The lower finances of the Telecom operators would reduce their ability to undertake investment in new-age technologies such as 5G. Further, concerns over sustained losses in the future could force companies such as Vodafone to shut their operations in India. Such an adverse scenario may lead to monopolization of the Telecom sector by 2- Telecom Operators.

Impacts on Banks:

As discussed before, the Telecom Operators are required to pay off the debt of almost around Rs 7 lakh crores. Hence, the recent SC ruling would reduce the ability of the Telecom companies to give back their loans leading to an increase in the NPA levels of the Indian Banks.

Impact on Consumers:

The telecom consumers in India have so far got immensely benefited in the form of reduced call and data rates. However, going forward, Telecom operators may pass on the additional burden onto the consumers by increasing the call and data charges leading to an adverse impact on the consumers.

Way Forward:

To enhance the growth of the telecom sector, improve the quality of service, and generate resources for the TSPs, a new infrastructural policy is the need of the hour.

The government needs to provide an enabling environment for telecom operators. 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.