AGR Case: All You Need To Know

Change in AGR Definition

The definition of AGR has been changed and the non-telecom revenue of telecom companies will not be considered a part of the AGR.

Let’s understand this better. The telecom sector in India is obliged to pay its annual dues to the Department of Telecommunication, which is calculated as a percentage of the Adjusted Gross Revenue (AGR) of the company per year. The inclusion of non-telecom revenue in the AGR would naturally increase the AGR and their dues to the government. 

The annual dues of the telecom company include license fees to DoT (Department of Telecommunication) and SUC (Spectrum Usage Charges). It also includes the interest rates due to the DoT. There could be a reduction in spectrum usage charges and license fees, redefining the AGR (adjusted gross revenue).

What is the AGR Issue?

The ongoing dispute between the DoT and telecom companies is over the definition of AGR, which is considered the base for calculating the dues. At present, telecom service providers pay around 3-5% of AGR as spectrum usage charges, while around 7-8% as license fees.  

As per DoT, the AGR should include interest income, dividends, profits on the sale of assets, insurance claims, and forex gains. As per the telecom companies, other income gains should not be included in the calculation of AGR. These are generally the non-telecom revenue streams. 

In simple words, as per telecom industries, profits earned from other sources cannot be subjected to the calculation of annual dues to DoT. The Centre disagreed on the same, because of which DoT has raised and issued pending dues worth around Rs 1.19 lakh crore to major telecom companies including Vodafone Idea, Bharti Airtel, Reliance Jioand other telecom service providers. 

This was reported to TDSAT (Telecom Disputes Settlement and Appellate tribunal) for clarification on the definition of AGR, which ruled in favour of the telecom companies in 2015. TDSAT excluded Non-Telecom Revenues from the definition of AGR, which was challenged by DoT, who then approached the Supreme Court in October 2019, and the Supreme Court ruled the definition in favour of DoT. The companies were then asked to clear their dues within three months, but they missed their deadlines. In July 2020, the Supreme Court denied their plea for extension and ruled that the companies have to clear their dues in 10 years, i.e., by 2031.

How Much are the AGR Dues?

The telecom companies have already paid a large part of this; with Airtel AGR dues, Airtel paid Rs 18,004 crore (Rs 43,980 crore demanded), in the Vodafone AGR case, Vodafone paid Rs 7,854 crore (Rs 58,254 crore demanded). TATA Teleservices has paid Rs 2,197 crores (Rs 13,800 crores demanded). 

The timeline of the case went like this:

• Back in 2005, the telecom companies went to TDSAT to clarify the definition of AGR.
• In 2015, TDSAT ruled the definition in favour of the telecom companies. 
• The Supreme Court, in 2019, upheld the definition of AGR as per DOT and demanded the telecom companies to clear their dues.
• Telecom companies sought a reassessment of the order.
• In January 2020, the companies missed their deadline to clear their dues.
• In July 2020, the Supreme Court denied reassessment of the dues.
• In September 2020, the companies were asked to clear the dues in the next 10 years, while telecom companies such as JIO and Airtel were provided with an exemption of Rs 40,000 crore due to the DOT. As per Supreme Court, “Shared operator telecom companies cannot be saddled with the liability of past AGR dues.” So, the JIO AGR dues were cleared completely.
• In January 2021, Bharti Airtel filed a petition in the Supreme Court seeking a correction in the calculation of the dues. 
• In July 2021, Vodafone also petitioned for the same. 
• On the 23rd of July 2021, on the Vodafone Idea AGR hearing date, both the petitions were dismissed by the Supreme Court.
• On the 15th of September, 2021, Government has considered a relief package offering a moratorium of four years for all dues from the telecom sector, approval for 100% FDI (foreign direct investment) through automatic route

What is the Impact on Consumers and Shareholders?

Since the telecom companies are debt-laden, the relief measures are positive for the company. It could be a big relief in terms of cash-outflows for taxes and fees to the Government.

So for the shareholders, the financial statements for the company may appear better considering strong demand for telecom services in the country followed by the advent of 5G technology.  

For customers, if the companies agree to pay the dues within the said timeline, the ongoing rates of data and other services may be hiked to cover the AGR dues owed by the telecom companies, which are on the verge of collapse in the current scenario. 

Note that the AGR case has been going on since 2005; 16 years later, the case was still not resolved, though some relief has been offered. But the debt levels of both Vodafone Idea and Bharti Airtel are huge, so it remains to be seen whether telecom companies, particularly Vodafone Idea can weather the storm and come out with a lighter balance sheet and better financials. 

Having said that, since the Government has approved 100% FDI in telecom, the companies may get fresh funds from foreign institutions. It should help the cash-strapped telecom companies.