Supreme Court verdict on AGR a clear setback for telecom firms, but they long ignored warning signs

On 24 October, 2019, the Supreme Court in their landmark judgement upheld Department of Telecommunications (DoT)’s contention and definition of Gross Revenue (GR)/Adjusted Gross Reveneu (AGR) as per the License Agreements which was agreed, accepted and signed by Telecom Service Providers(TSPs), the licensees, and further ordered Telecommunications Service Priority (TSPs) to make payment of all outstanding dues of License fee and spectrum usage surcharge SUC (including interest and penalties) to DoT with in 3 months. Such outstanding dues along with interest and penalties are around Rs 92,000 crore till FY17. In fact, the SC came heavily on TSPs for their unfair conduct in deliberately avoiding to pay legitimate dues pertaining to revenue share of DoT on one baseless plea or the other, repeatedly raising frivolous, baseless and untenable objections relating to definition of GR/AGR and its computation and litigating for two decades. Even the SC Rulings in 2007 validating AGR definition of License Agreement as well as the 2011 judgment clarifying what constitutes GR/AGR, thus bringing absolute clarity on the issue did not deter TSPs from continuing with their wilful strategy to raise one dispute or the other. There was no bonafide dispute but just an attempt to avoid full payment of the agreed part of DoT revenue share in violation of their contractual obligation. The final enforcement of Rule of Law is a long-awaited victory of DoT. [caption id=“attachment_7053111” align=“alignleft” width=“380”]  Representative image. Reuters[/caption] Incidentally, the SC verdict is also a shot in the arm for the government which is looking for additional resources. The payment of long-pending dues to the government will certainly help it to mitigate the current fiscal stress to some extent. TSPs are now aggressively lobbying with the government for urgent relief in AGR-related payments citing their so-called ‘poor state of finances’. However, under the current circumstances, there may be no case for for the government to step in given the background of the case, watertight judgement and with the government itself being one of the aggrieved party before the Court. The government may also avoid encouraging wilful and unethical defaulters by giving them relief to the detriment of those TSPs who have paid their dues lawfully for years. While it is true that payment of AGR-related dues is a big setback for the concerned TSPs; it is also true that the affected incumbent TSPs are in any case very large entities commanding a big market share and huge market capitalisation and are also backed by well-known multi-national corporations (MNCs) with deep pockets. In fact, these TSPs, in course of their operations, have created highly valued business/companies and assets in India as well as abroad out of the earnings from the Indian telecom market for the last two decades. Therefore, to assume that they are incapable of paying dues is naive at best and preposterous at worst. These TSPs are capable of paying AGR-related government dues within the time frame set by the Supreme Court. The SC verdict may temporarily have some adverse impact on the financial health of particularly the weaker telecom firms, but is a manageable situation for them. The competition in the market place which got heated up with the entry of a new operator with new technology and new business models three years ago has already settled to desirable levels. A dip in revenue during this period has already bottomed out. Signs of revenue growth are clearly visible with Airtel /Voda ARPU registering an increase. If the promoters believe in India’s immense business potential, which in anyway has an enormous value—a large part of it yet unlocked, they will pump in requisite money to overcome the current temporary phase to reap huge benefits in future. I firmly believe no one can ignore a vibrant, dynamic, potentially rewarding Indian digital communications services market and Airtel/VodafoneIdea who are well-ensconced leaders in this vibrant market cannot allow a huge business opportunity in adoption of 4G and 5G to slip away. With the hue and cry being made by the incumbent TSPs post-the SC verdict, the government has now set up a committee of Secretaries chaired by Cabinet Secretary to look into these issues so as to take a holistic view of the entire situation and to suggest measures to mitigate the financial stress being faced by the the telecom sector, keeping in view the larger public interest. (The writer is a former Member-technology, Telecom Commission, Department of Telecommunications)