Verdict on AGR: How Much do India’s Telecom Industry Have to Cough Up?

The Wire’s analysis indicates that the total dues on Airtel till March 2017 comes out to be about Rs 50,000 crore, while Vodafone Idea will have to pay about Rs 40,000 crore. 

India’s telecom industry has started off again on its narrative of financial stress, after the Supreme Court on Thursday upheld the Department of Telecommunications (DoT)’s decades-long claim over recovering licence fee and spectrum-usage charge (SUC) from operators. 

This money is basically the amount that would have been available for the welfare of India’s citizens, who effectively own the country’s natural resources, if operators had paid their dues on time.

The Wire’s analysis indicates that the total dues on Airtel till March 2017 comes out to be about Rs 50,000 crore, while Vodafone Idea will have to pay about Rs 40,000 crore. 

The telecom department has yet to calculate dues for March 2017 onwards. After initially falling, Airtel’s shares eventually closed 3% up on Thursday. 

How did we get here, though? In 1999, the Centre gave a relief package to ‘ailing’ telecom operators who couldn’t pay the fees on the licence they got through auction (which came along with 4.4 MHz of spectrum). They were then migrated from a ‘fixed licence fee’ regime to a ‘revenue share’ regime under which they had to pay a percentage of adjusted gross revenue (AGR) annually. 

This had huge implications on government revenues. In 2011, former communications minister Kapil Sibal informed the Joint Parliamentary Committee (JPC) that the government lost about Rs 1.5 lakh crore due to this relief package. 

The Supreme Court’s verdict rebukes operators for not holding up their end of the bargain.

“Telecom service providers, in spite of the financial benefits of the package, started to ensure that they do not pay the licence fee to the public exchequer based on even an agreed “AGR”,” said the bench of Justices Arun Mishra, S. Abdul Nazeer and M.R. Shah.

Also read: Reliance Jio Claims Airtel, Vodafone Are Fraudulently Misusing IUC Regime

What complicated matters is that operators didn’t pay fee and spectrum-usage charges on what is called total adjusted gross revenue (AGR). 

For example, when a customer buys talk-time of Rs 100 from a shop, the shopkeeper gets a commission of Rs 5. Operators often showed only Rs 95 as revenue, instead of Rs 100. 

Similarly, other well-defined components of AGR were ignored by operators when they calculated licence fee and spectrum usage charges.

“The definition of gross revenue is crystal clear in the agreement,” said the bench. “How the adjusted gross revenue is to be arrived at is also evident. It cannot be submitted that the revenue has not been defined in the contract.”

The court said the conduct of licensees was “highly unfair”. Their motive was to delay payment of the Centre’s dues pending since 2003. 

“When Government has parted with the privilege as to revenue on sharing basis under the license, and an agreement entered into, it ought to have been precisely followed. The conduct of the licensees was highly unfair, and anyhow and somehow, they had attempted to delay the payment.”

Quantum of dues on Airtel and Vodafone Idea

How big is the financial blow? DoT officials told The Wire that Airtel will have to pay outstanding dues for Telenor and Tata Teleservices, as it acquired spectrum of the two companies.

The liabilities of Vodafone and Idea will now be on the combined entity Vodafone Idea.

Licence fee due (Rs crore)
Total dues (Principal + Penalty + Interest)
Bharti Airtel 29364.61 41507.99
Telenor 2160.17
Tata 9983.21
Vodafone 20384.46 28849.93
Idea 8465.47
Spectrum Usage Charge dues (Rs crore)
Bharti Airtel 8285.56 8316.85
Telenor 31.29
Vodafone 7318.09 11004.16
Idea 3686.07

Total dues till March, 2017 on Bharti Airtel are about Rs 49,825 crore, and on Vodafone Idea about Rs 39,854 crore. The DoT has yet to issue demand for the period 2017-19.

Personal gain of promoters

The telecom industry’s favourite argument is that of “financial stress”. Since 1999, telecom operators have got relief of lakhs of crores at the cost of taxpayers. Promoters then sell their equity and make off with a great deal of personal wealth. 

The Ruia brothers made $5 billion when they sold their shares to Vodafone in 2011, while Chinese business tycoon and Hutchison promoter Li Ka-Shing sold his equity to Vodafone for $11 billion in 2007.

Also read: Did the SC Solve the Impasse Between India’s Competition and Telecom Regulators?

Rajeev Chandrasekhar, Analjit Singh and C. Sivasankaran are among other telecom billionaires who sold their telecom companies.

Similarly, chairman of Airtel Sunil Mittal made fortune and has a personal networth of $7.5 billion, according to Forbes. K.M. Birla is worth $12.5 billion. 

Airtel had a market cap of $28 billion on 25th October, while Bharti Infratel had a market cap of about $6 billion.

Impact of the verdict on existing operators 

There are currently mainly two incumbent operators – Vodafone India and Airtel. Even before the apex court  judgement came, Vodafone Idea was seeking a relief package from the government – essentially asking taxpayers to compensate it for its bad business decisions. 

The company has a debt of about Rs 1.3 lakh crore and its losses for the Q1 FY’20 were about Rs 4,900 crore. Its Indian promoter has been telling government officials that it will effectively close down if it is not given a relief package. It wants an increase in Interconnect Usage Charge (IUC) and moratorium on payment of licence fees.

If a company is in such a bad financial condition and needs taxpayer support to continue its services, then it would have closed down even without the Supreme Court judgement. The judgement has little to do with the so-called financial stress of the companies.

As far as Bharti Airtel is concerned, stock markets have reacted positively to the judgement. A few analysts are already calling this a ‘commercial death pentalty’, but the court cannot take into account the financial position of companies or people that have flouted the law.