SC ruling on AGR: Telcos will have to pay ₹1.3-lakh crore

Incumbent telecom operators, including Airtel and Vodafone Idea, will have to cough up nearly ₹1.3 lakh crore after the Supreme Court dismissed their plea seeking a review of what constituted adjusted gross revenue (AGR).

The biggest impact will be on Vodafone Idea, which will have to pay dues of around ₹40,000 crore while Airtel will have to pay ₹35,000 crore. There will be not be any significant impact on Reliance Jio.

It is not clear how the balance ₹65,000 crore will be recovered by the Department of Telecom as most other operators, including Aircel, Tata Teleservices and Reliance Communications, have shut shop.

What is AGR?

The crux of the entire issue is what constitutes the operator’s AGR. Operators have to pay a part of their annual AGR as licence fee and spectrum usage charge. This arrangement was put in place in 1999 as part of a migration plan. The operators had bid astronomical amounts to acquire spectrum and then sought relief.

Under the 1999 migration plan, operators agreed to pay annual revenue share instead of an upfront fee. A few years later, the operators claimed that they are liable to pay revenue share only on income generated from telecom services. The DoT opposed this claim and wanted a share of income from non-licenced activities as well. The operators went to court and stopped paying revenue share on the disputed amount.

Supreme Court ruling

Upholding the DoT’s view, the Supreme Court on Thursday said that except for income from termination fee and roaming charges, operators have to pay revenue share on all other income.

“The conduct of the licensees has also to be considered in the backdrop of the fact that the regime of revenue sharing was extremely beneficial than the previous regime of the fixed licence fee. 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 court said in a 153-page ruling, adding that there was no ambiguity on the meaning of revenue.

“ Once the contract has been entered into, the definition of gross revenue is binding, and the licensees cannot try to wriggle out of the decision by making impermissible attempts to depart from it. Given the definition of gross revenue, the same includes revenue from activities beyond the licence,” the three-judge bench said.

Industry unhappy

While the actual balance due from telcos is around ₹23,000 crore, DoT has slapped a penalty, with interest on the original amount. On the question of waiving the penalty and interest, the court said, “No litigant can be permitted to reap fruits on such inconsistent and untenable stands and litigate for decades in several rounds which is not so uncommon but is disturbing scenario projected in very many cases.”

The ruling comes at a time when both Airtel and Vodafone Idea are struggling under huge debt. “The Supreme Court’s judgement is the last straw in contributing to financial distress. It remains to be seen whether the industry will be able to recover from this,” said Rajan S Mathews of COAI.

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