SC order on telecom revenue definition deals disastrous blow to industry in acute distress, says COAI

The Supreme Court ruling on the telecom sector revenue definition will deal a “disastrous blow” to the industry, given its precarious financial condition. “The question that arises is whether this is the financial straw that finally breaks the back of operators,” Cellular Operators’ Association of India (COAI) Director General Rajan Mathews told PTI. Mathews further said this is a “disastrous blow” for the industry given its current state of acute stress. Hemant Joshi, Technology Media & Telecom (TMT) Leader, Deloitte India said this will create a huge pressure on the already loss-making sector. “While it should remove ambiguity and reduce litigation, the impact on telcos will be very negative given their current state. It will put additional burden on cash flows and profits of telecom companies in India,” Joshi said. The decision will have a big impact on the sector as it is already in the state of huge financial distress, Prashant Singhal, Emerging Markets TMT Leader, EY, said. In a setback to telecom service providers, the Supreme Court on Thursday allowed the Centre’s plea to recover adjusted gross revenue (AGR) of about Rs 92,000 crore from them. A three-judge bench upheld the definition of adjusted gross revenue formulated by the Department of Telecom (DoT). [caption id=“attachment_6075511” align=“alignleft” width=“380”]  File image of Supreme Court of India. PTI[/caption] It added that the service providers would have to pay penalties and interests to the DoT. The bench made it clear that there would no further litigation on the issue and it would fix a time frame for calculation and payment of dues by the telecom companies. In July, the Centre had told the apex court that leading private telecom firms like Bharti Airtel, Vodafone and state-owned MTNL and BSNL have pending licence fee outstanding of over Rs 92,000 crore till date. In an affidavit filed in the top court, the DoT said that as per calculations, Airtel owes Rs 21,682.13 crore as licence fee to the government. Dues from Vodafone totalled Rs 19,823.71 crore, while Reliance Communications owed a total of Rs 16,456.47 crore, the DoT said. BSNL owed Rs 2,098.72 crore, while the MTNL’s dues stand at Rs 2,537.48 crore, it said. The total amount, which has to be recovered from all the telecom firms, accrues to Rs 92,641.61 crore as on date, it said. As per the New Telecom Policy, telecom licensees are required to share a percentage of their adjusted gross revenue (AGR) with the government as annual license fee (LF). In addition, mobile telephone operators were also required to pay spectrum usage charges (SUC) for the use of radiofrequency spectrum allotted to them. Telecom operators had moved the top court against the Telecom Disputes Settlement and Appellate Tribunal’s (TDSAT) order which ruled that certain non-telecom revenues like rent, profit on the sale of fixed assets, dividend and treasury income would be counted as AGR on which licence fee would have to be paid to the government. The TDSAT order had exempted a large number of streams from the definition of AGR, like capital receipts, bad debt, distribution margins to dealers, forex fluctuations, sale of scrap and waiver of late fee. The telecom tribunal also said revenue from non-core sources such as rent, profit on sale of fixed assets, dividend, interest and miscellaneous income must be included while computing a carrier’s AGR, dealing a setback to telecom operators who would have to shell out more towards licence and spectrum usage fees. ‘Will weaken sector viability’, says Bharti Airtel Telecom operator Bharti Airtel on Thursday said the Supreme Court verdict on adjusted gross revenue will weaken viability of telecom sector, and the government must review its impact and find ways to mitigate financial burden on the already stressed industry. The Supreme Court judgement, allowing the centre’s plea to recover AGR (revenue earned from sale of telecom services) of about Rs 92,000 crore from telecom service providers, will add to the woes of financially distressed telecom operator. Expressing disappointment on the verdict, Bharti Airtel said: “The TSPs have invested billions of dollars in developing the telecom sector and providing world-class services to consumers. This decision has come at a time when the sector is facing severe financial stress and may further weaken the viability of the sector as a whole”. The company said of the 15 old operators impacted by the order, only two private sector operators remain in service today. There has been an industry dispute since 1999-2000 between licensees and the licensor i.e., the Department of Telecommunications on the scope of the definition of AGR. The liability on Bharti Airtel alone is estimated to be over Rs 21,000 crore. “The government must review the impact of this decision and find suitable ways to mitigate the financial burden on the already stressed industry,” Airtel said. --With PTI inputs