Crusade of the Telcos – Insights into the AGR Dispute

Prologue

A protracted legal battle which began in 2005 between the Department of Telecommunications (DoT) and Private Telecom companies (Telcos) finally ended in October last year. The public thought that was the end of it, but a verdict that requires one party to pay thousands of crores to the other raises more questions than answers. To answer these questions or even understand them, a background of the entire case is a must.

The Dragging Dispute

Back in 1999, telecom operators were fed up with the license fee regime. The government saw this as an opportunity to introduce the revenue sharing model wherein Telcos were required to share a percentage of their Adjusted Gross Revenue (AGR) with the government as license fees and spectrum usage charges.

The main contention for the long drawn legal battle was the scope or definition of AGR, which determined the share of revenue Telcos were supposed to give as their fee. Telcos claimed that AGR should comprise of revenue earned only from telecom services and not from non-core areas such as profit on sale of any investment or fixed assets.

On the other hand, the DoT believed that AGR must include all revenues from both telecom and non-telecom services. This meant that if the Telcos sold an old tower or earned an interest on investments, even such revenues were to be shared with the DoT. The DoT felt this was fair because at the end of the day, all revenue earned by the Telcos was due to their telecom license given by the government.

The government’s definition of AGR was challenged in 2005, which began a series of appeals and orders that would go on for fourteen long years. In 2007-2008, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) narrowed the scope of AGR, which was then appealed to the Supreme Court questioning TDSAT’s jurisdiction. The Supreme Court dismissed the appeal and the TDSAT echoed its earlier findings.

Subsequently the TDSAT passed an order that narrowed down the definition of AGR, and it seemed like the matter was over once and for all. This was until the DoT made an appeal once again to the Supreme Court on the advice of the law ministry. This time the Apex Court intervened and set aside the TDSAT order, which meant that a licensee (Telcos) would have to challenge any demand before TDSAT, and the decision would be based on merits and claims.

The Supreme Court’s decision made all Telcos move the TDSAT, challenging the basis of DoT’s demand under the broad AGR definition. After almost four years, in 2015 the TDSAT stayed the case in favour of the Telcos once again to the dismay of the DoT. This was until another four years passed, when the Supreme Court on October 24, 2019 set aside the TDSAT’s order and upheld the broad definition of AGR as contested by the DoT.

The Adverse Aftermath

The ruling has had major ramifications for almost all the Telcos, especially the older service providers such as Vodafone Idea and Bharti Airtel who had to cough up exorbitant amounts of 58,254 crores and 43,980 crores, respectively. This was to be done in a period of three months from the ruling, which seemed impossible, and as expected the Telcos missed their January deadlines. The important question here was how the payments would be made, considering the gargantuan sums which the Telcos clearly did not possess.

The Telcos (primarily Vodafone Idea and Bharti Airtel) had no choice but to approach the Supreme Court and allow them to pay their dues through ‘staggered payments’ for a period of 20 years. Staggered payments meant more time, but it also meant more interest, which showed the Telco's desperation. In the interim, they had also contacted the DoT and agreed to be allowed self-assessment of the aggregate dues. Self-assessment meant that the monies of approximately 50,000 crores were now shown to be about 20,000 crores by the Telcos.

On hearing about this, the Supreme Court was utterly enraged and would not allow any kind of self-assessment as it would set a bad precedent. This meant that Vodafone Idea and Bharti Airtel had collective outstanding dues of over 75,000 crores to be paid, after paying up a relatively small amount since the ruling. To add to the misery, the Supreme court denied the 20-year period to make the dues and asked for a detailed payment plan with guarantees from the owners of the Telcos.

The Spectrum Saga

Most recently another contention has cropped up, this time by the Telcos such as Reliance Communications, that are dealing with bankruptcy proceedings. These companies will only be able to clear their dues if they can sell their assets but deciding on the ownership of their most valued resource (Spectrum) has since been a major hurdle.

Spectrum is an asset that has been allocated to the Telcos by the state, which allows them to use an amount of radio waves (2G,3G,4G) , depending on how much they 'own'. While the insolvency proceedings were on, the bankruptcy court has allowed Telcos to sell their share of spectrum to other entities in order to clear their dues. The government does not agree with this, as it considers spectrum to be a state asset that belong to the country at large.

The Supreme Court was asked to intervene once again on the issue of spectrum as the government was to explain their position on why bankrupt Telcos must not sell their spectrum usage. Their worry is that, the DoT has been admitted as operational creditors, which means they will not have any priority when it comes to clearing of dues. The Spectrum could very well be sold, and the DoT would still not get a penny, which is unacceptable.

Epilogue

The Supreme Court must decide on a whole lot of contentions. They must admit a payment plan from the likes of Vodafone Idea and Bharti Airtel. Further, they must look at the Spectrum issue and agree to what the right course of action should be. Everything seems very uncertain, as we do not know how the crippled Telcos will give personal guarantees in such turbulent times. Moreover, we do not know how the insolvent Telcos will pay up the dues if Spectrum is not considered their personal asset.

The only certainty here is that this is not the last we will hear about the AGR dispute. The matter will be brought up time and again in the Court, in the news and possibly here on ‘Legally Bullish’ as well, because as we said earlier, the ruling has raised more questions than answers.

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