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Corporate Politics behind the AGR: No fault of the Government

When mobile operators were issued licences around two decades ago, they had agreed upon sharing a percentage of their adjusted gross revenue (AGR) with the government.

 

On October 24, the Supreme Court directed telecom operators to pay at least Rs 92,000 crore in past dues to the government within three months, then the real dispute started over the AGR. While the companies only want core services to be considered under AGR, the telecom department has included non-telecom services as well. This has developed into a tussle that has as many arguments as there are angles.

 

Airtel’s dues are roughly Rs 21,680 crore, while Vodafone Idea will need to cough up at least Rs 28,300 crore. Jio’s dues are just Rs 13 crore since it is a late entrant in this field.

 

DoT asks telcos to pay AGR dues in 3 months after self-assessment and the DoT further said that the Supreme Court in its final judgment of October 24 had disposed off the AGR matter with the order that the appeals of the licensees were dismissed.

Once telcos submit their dues, the DoT will match it with its own AGR account. It’s the responsibility of the licensee to pay the licence fees and other dues after carrying out their own assessment as prescribed in the licence agreements. You are therefore directed to make the payment in accordance with the order of the Supreme Court of October 24 and submit the requisite documents to ensure compliance within the stipulated timeframe,” said the letter issued to telcos by the DoT.

 

The DoT further said that the Supreme Court in its final judgment of October 24 had disposed off the AGR matter with the order that the appeals of the licensees were dismissed.

 

The two main recipients of the notice, Airtel and Vodafone Idea (VIL), have their Q2 results scheduled to be announced on Thursday. Now the two will have to self-assess their AGR dues for the last 14 years and submit the amount by January 24. If the DoT finds any difference in figures, it will ask them to re-verify with their figures.

 

If both the telcos go to the Supreme Court again for review petition before November 24, then only the top court will decide if their petitions are maintainable, depending on the grounds they present on review.

 

Both Airtel and VIL were seeking relief from the DoT and the Secretary’s panel on waiver of penalties and interest on AGR. The problem started when telecom operators migrated to a new system offered by the government in 1999 under which they agreed to share a certain percentage of revenue with the government.

 

Operators had argued that AGR should comprise only revenue from telecom services, but the DoT insisted that it should include all revenue earned by an operator.

 

In Box:

Currently, telcos pay 3-6 per cent and 8 per cent of their adjusted gross revenue (AGR) as spectrum usage charges and licence fee (including Usof), respectively.

 

One, scale-down of a large incumbent telco will adversely impact the cost structure of Bharti Airtel. “A sharp, abrupt change in market structure may raise concerns over Bharti’s ability to continue with a low cost model as the decline in tower sharing may jeopardize its benefits from tower sharing model, and result in rising costs and overall capex (led by incremental investments in towers),” analysts at SBICAP Securities Ltd said in a note.

 

Second, it will adversely affect the business of infrastructure service providers such as Bharti Infratel Ltd, whose shares were also in the red, down 7%.

 

However, the  Bharti Airtel’s board to meet on December 4 to consider multiple options for raising funds, including equity and debt instruments, to pay thousands of crores of rupees in additional statutory liabilities emerging from a recent Supreme Court order on the definition of adjusted gross revenue (AGR).

The company faces dues of more than Rs.35,500 crore in licence fees, spectrum usage charges (SUC), interest and penalties, as per the telecom department’s initial calculations, which needs to be paid by the end of January, as per the apex court order. The government has said the amount could rise, while Bharti Airtel has filed a review petition to lower the dues, by seeking a relook at the interest and penalties, which make up 75% of the dues.

As per the sources, Bharti Airtel recently made provisions of over Rs 28,450 crore toward the additional AGR dues, which saw it posting a loss of more than Rs 23,000 crore in the September quarter. The company has also expressed doubts about viability if it has to pay the amount that’s due in full.