The Royal Telecom AGR Mess

The government has only itself to blame for the current predicament

If telecom companies and the union government’s Department of Telecom (DOT) were hoping that the Supreme Court would relent, they were in for a rude shock. The Supreme Court bench of Justices Arun Mishra, S A Nazeer and M R Shah pulled up the telecom companies for doing self assessment of their adjusted gross revenues (AGR) demands, and for paying in tranches. The honourable Justices were displeased by the tardiness of the telecom companies and the government. Never mind the economic realities of the day or the long term consequences of the judgement on the telecom sector as a whole. The fact that we might end up with a private monopoly in telecom and that would hardly be good for the government or the consumers is a real danger, but let us not dwell on it for the moment.

The SC has also refused to entertain for immediate hearing the plea of the DOT for allowing the telecom companies to pay their AGR dues over a period of 20 years, which would help them survive for the time being. That application will only be taken up after two weeks.

Much has been written about why the judgement perhaps ignored several critical things. In simple terms, the dispute was over what exactly was the definition of Adjusted Gross Revenues (AGR). In the simplest terms, the dispute was whether AGR was just the revenues from core telecom services — or did it include non-telecom revenues including interest income and others.

The roots of the problem lie in the changes in telecom policy from the time the first telecom licenses were handed out in 1994 under the National Telecom Policy, 1994. The licensing fees were extremely high and almost all the companies that got licenses got into trouble because of the fees they were paying. (Of course, the companies too were to blame because they had applied for these licenses and knew what they were getting into.) In 1999, the government offered to rework the licenses from a steep fixed fee to a revenue sharing model. According to this, the telecom users would share a portion of their AGR as annual license fees (LF) and spectrum usage charges (SUC). The AGR would be calculated after allowing for certain deductions mentioned in the licensing agreements. This was seen as a huge relief by the telecom companies and most moved into it immediately.

However, in 2003, a few telecom companies disputed the DoT’s definition of AGR and the demands based on that definition. As mentioned earlier, the telecom companies wanted AGR to be calculated only on telecom revenues — while the DoT wanted it to include non-telecom revenues as well. The dispute went up to the Telecom Disputes Settlements And Appellate Tribunal (TDSAT), which ruled in favour of the telecom companies in 2006. The DoT promptly appealed to the Supreme Court. Post that, there was a certain amount of back and forth between the telecom companies and the government in the SC. In SC actually kept sending the dispute back to the TDSAT. And in 2015, the TDSAT came out with a final judgement that set aside the DoT demands and agreed to the viewpoint of all the telecom operators.

This was then promptly appealed by the government in the Supreme Court in 2015, and the SC, in its wisdom, decided to overturn the TDSAT order and uphold the government’s AGR definition.

Now here comes the problem. The original AGR dispute cropped up in 2003, when the Atal Bihari Vajpayee led NDA was still in power. The judgement came when UPA 1, led by Manmohan Singh was in power. Much of the back and forth of the dispute took place in the era of UPA1 and UPA2, and it could have tried to find a proper solution that would help the telecom industry without harming government revenues. But it continued appealing each time the judgement of the TDSAT went against it.

The final TDSAT judgement came in 2015, and it favoured the telecom companies. This was when the first Narendra Modi led government was in charge. As a government which claimed it was against tax terrorism unlike its predecessor, the Modi government could well have agreed to the TDSAT judgement and asked for the AGR share to be paid up promptly. Instead it chose to appeal once again to the Supreme Court, and the final judgement by the SC came only in 2019. By then, the telecom sector was in deep trouble with only three private players in the market — Reliance Industries with its Jio, Bharti Airtel and Voda-Idea. And both Airtel and Voda-Idea were not in a great shape financially.

The UPA governments had been silly to pursue the case doggedly but the Modi government had a good chance to settle things in 2015 itself. It perhaps did not do so because the industry was still not in complete doldrums. Even later though, it could easily have withdrawn the case before the final judgement came through. But it let things carry on.

Once the judgement came, and the the gravity of the telecom sector mess was apparent, the DoT suddenly found itself batting for the telecom companies. And odd position to take given that it was the one litigating against them.

This is not to say that the telecom companies were blameless. They had not made provisions for a loss in court. Now they are trying to plead with the government to give them more time to settle up.