The Supreme Court (SC) finally put an end to the prolonged case regarding Adjusted Gross Revenue (AGR) dues of tele-communication companies (telecoms). The apex court clarified that telecom firms will get 10 years to clear their AGR dues, instead of the 15-20 years as suggested by the companies and the Department of Telecommunications (DoT). The companies can make payments in annual instalments between 2021 and 2031. Payments must be done on or before February 7 every year. Non-payment in any year will lead to accrual of interest and contempt of court. Additionally, due to the ongoing pandemic, telecoms shall pay 10% of their total dues by March 31, 2021.
Backdrop of AGR
In India, operational telecoms have to pay a part of their revenues as licence fee and spectrum charges to the DoT. Defining the AGR, the government earlier said that the companies shall cover all the revenue earned that will essentially include earnings from non-telecom sources - like deposit interests and sale of assets. The companies challenged this definition in the SC. But, in October 2019, the SC accepted the government’s definition of AGR saying the telecoms are liable to pay the dues and the penalty on the dues as well. A review of the judgment was also dismissed. If the company tries to sell the spectrum, the National Company Law Tribunal (NCLT) will get to decide whether this can be sold under the Insolvency and Bankruptcy Code (IBC) or not.
Sanjay Hegde, Senior Advocate of Supreme Court, told BE, “The AGR dispute is actually related to revenue earning for the union government. Recently, the government argued and won an overwhelming victory in the Supreme Court. As the government sought to implement it with concessions, it led to problems with the Supreme Court. However, due to the governmental policies, Reliance Jio always remained in the best position despite being a later entrant - though the union government is supposed to remain neutral on this issue.”
Who gets to pay what?
For Bharti Airtel, which faced an AGR payment of `36,000 crore, the company has already paid about `14,400 crore (around 40%) of its AGR dues. It still has to pay `21,600 crore. For Vodafone Idea Ltd. (VIL), they will have to make payment of around `58,000 crore and the company has only paid `7850 crore. But the SC has exempted Bharti Airtel and Reliance Jio from paying around `40,000 crore of their past dues. The court said they are using spectrums of telecoms that are now bankrupt. Airtel uses the spectrum of Videocon and Aircel where Jio uses the spectrum originally owned by Anil Ambani’s Reliance Communications (RCom).
In the present context, the payment of AGR dues is important because it has given the sinking telecoms a scope to regain their platform in the Indian communication market. It is a well-known notion that Mukesh Ambani’s Reliance Jio has earned a strong grip with an offensive pricing policy. Lack of governmental control has actually given it significant leverage. Early entry into the 5G platform gave them an advantage. After partnering with tech giants like Facebook and Google, digital India was probably expecting a monopoly of Jio. Other significant players like VIL and Airtel then could be forced to roll back their operations - leaving no choice for the customers to choose among other networks. Now, considering the amount payable, VIL is in the toughest situation that could create either monopoly of Jio or duopoly of Jio and Airtel. Yet, VIL is looking with anticipation and also announced a new strategy as they have got 10 more years to pay the AGR back.
Ravinder Takkar, MD and CEO, VIL, recently informed during a press briefing that they are going to introduce a new unified brand ‘Vi’ - that will regain the confidence of the market. Unlike other networks like Bharti Airtel, VIL will also raise their tariffs and take the risk. Kumar Mangalam Birla, Chairman, Aditya Birla Group and VIL, said, “With our new brand - Vi, we stand committed to partner the government to accelerate India’s progression towards a digital economy.” India is the second largest telecom market and the largest data consumer globally. Not ready to give up the market easily, VIL has recently approved fundraising of upto `250 billion through equity and debentures along with both domestic and foreign investments.
Showing the other side of the coin, Advocate Hegde commented, “Vodafone-Idea cannot go on without massive capital infusion, which will then turn into revenue for the government. The apex Court is not supposed to look at the economic consequences of its judgements; it only declares the law. The court does not go by long term consequences of the policies. However, there has been a constant criticism of the court including the previous round of telecom licencing war regarding 2G spectrum. In the last decade, different benches of the apex court have emphasised collection of revenue at any cost - without naturally going into the question of business sustainability.”
Earlier, shares of VIL had dropped by around 17% lower after the court’s verdict - fearing bankruptcy. But the new announcements have helped them to rally each stock to 10% more on BSE. With additional tariffs and the same 4G network, the future of VIL can swing either way. But, Reliance Jio has recently released their new low cost post-paid option which was the ruling ground of Airtel and Vodafone – leaving another inclination for further monopoly in the Indian telecom sector. Advocate Hegde said, “The customers' perspective always goes for immediate short term benefits. They are likely to be dictated by price consideration value. With easier sim-portability option, customers will invariably migrate to cheaper offers.”