The saga of AGR in Telecom Industry Explained

The saga of AGR in Telecom Industry Explained

AGR, Telecom Industry, Department of Telecommunications(DoT) – These words are so linked up and heard these days and we kept on hearing the crisis in the telecom industry because of AGR and the supreme court notice. Now, What is AGR and how supreme court and department of telecom is involved in this? Everything explained.

AGR stands for Aggregated gross revenue. This has been introduced in the year 1999 when the telecom industry is moving towards a new method of sharing revenue with the government which is in contrary to the earlier fixed license fee model. Before 1999, Telecom industries used to pay a fixed amount as a license fee to the government. But from the year 1999, telecoms are to pay a percentage of the total revenue to the government. This is termed as Profit sharing model and AGR is the total revenue of the Telecom Industry.

This new model of revenue sharing was introduced to create relief to the telecoms from fixed steep license fees. the model was introduced by the then NDA led government. The model was supposed to be a gift to the telecom industry and help telecoms survive in the economy.

So the model is in place for many years and what is the issue that is at present that is an evil to the telecoms. In fact, the case has been fought by both Telecoms and Govt for over a decade now. The problem arose on the definition of AGR. Now when we say Aggregated gross revenue, it is assumed by the telecoms that only that revenue which is connected to the only telecom services. But according to DoT, AGR includes both Telecom and Non-Telecom service revenues of a Telecom company. The case was in the supreme court for a long time and in June 2019, Supreme court gave its judgement in which it expanded the definition of AGR and termed that it includes both telecom services and non-telecom services revenue.

This means that Telecom companies need to share a larger amount of money to the government when compared to the amount they are actually sharing. Because previously telecoms are sharing a percentage to the government only on the revenues form telecom services. But Due to present expanded definition, telecom companies need to share a percentage on all the revenue generated. This resulted to be a huge burden on the telecom companies and the amount to be paid to the government by different telecom companies is in thousands of crores. In total, around 119,292 crores have to be paid to the government by Telecom Companies. This is a huge sum to be demanded from already suffering telecom companies.

To quote the burden, Airtel has to pay Rs 43,980 crores, Vodafone’s Idea Rs, 58,254 crores and others.

Now, this is a huge burden on the industry and if this is forced on them, they might move out of business. Vodafone Idea earlier has said that if the amount is forced to be payable immediately, in that case, we may have to move out of business. If this happens then only two players will be left in the industry and having this condition will be very bad for the Indian economy. And presently in terms of revenue and profit, only JIO seems to be in a comfortable position and if this continues, then the telecom industry steps into hands of a single player which is a scary dream for Indian economy.

Now Dot understands the difficult situation these companies are facing and has been sympathetic towards these companies. DoT has not forced these companies to pay the amount immediately. This matter reached the ears of Supreme Court and in February SC has raised its voice on DoT for not taking any serious action on these companies for not paying the dues. A three-judge bench headed by Justice Arun Mishra expressed shock that the telecoms – Vodafone Idea and Bharti Airtel – had not paid any of their dues by the 23 January deadline set by the court in its AGR judgement last October. Justice Mishra was livid, saying he was “literally shocked” that not a “single penny has been paid till date”, and asked for the initiation of contempt proceedings against the telecoms. Reliance Jio is the only telco to have paid up.

In March 2020, In order to reduce the burden on Telecoms and save their existence in the industry, DoT has approached to allow the telecoms to pay the sums over a period of 20 years. If this allowed will be a big relief for the suffering industry and will help in reviving them out of the situation. The case has been adjourned for June 18 2020.

In its claim, the government has asked the supreme court to allow the telecoms to pay this over a period of 20 years so that it will be a relief to the telecoms and will help then survive in the industry.

Supreme court seems to be unhappy at this proposal. The court has seriously said in its October 2019 judgement that the dues have to be paid in 3 months. But till now complete dues were not paid. The court is furious on this issue. But due to the request from the government court has considered the proposal to allow telecoms to pay the dues over a period of 20 years. But the court wants a bank guarantee from these telecoms for the due amount. This termed to be a turning point.

Vodafone has claimed that it is difficult to give guarantee for such a large amount. This is not a hundred crore or so. The dues are in thousands of crores and this is a very large amount and the company is not enjoying any profits for many years now. Government has already 15,000 crore rupees guarantee for spectrum. Now bringing this guarantee is not possible. Even Bharati Airtel has claimed the same and even highlighted the spectrum guarantee that is with the government.

Supreme court said it cannot allow without any guarantee. It highlighted that even during the pandemic telecom sector is the only thing that is making a profit and it is the government that needs money in this situation to fight the pandemic. You have to work a way out of these and prepare the document for the next hearing which is scheduled in July 3rd week.

In Conclusion, the Telecom sector is suffering for a long time. After the arrival of jio, the subscribers are reduced for may telcos and the prices have dropped to a record low. Now India has a very low price per GB of internet data. This reduced the revenues of telecom companies. And they are in losses for a long time. Now this AGR burden will only increase the pain in the sector. The government has understood the problem, but the honourable supreme court is supposed to go by the law of the land. If this huge sum is pressed to payable by the telecoms immediately then we may see the collapse of the industry.

until then see you in next article…