DM Deshpande
In a relief to Vodafone Idea (Vi) the Supreme Court on October 27, set aside the additional Adjusted Gross Revenues (AGR) demand of Rs 9,450 crores raised by DoT and directed the central government to review and reassess its dues.
In a further clarification subsequently, the highest court has ruled that the entire outstanding dues of Vi till 2016-17 (and not just the additional AGR demand of Rs 9,450 crore) could be reconsidered by the government.
This is indeed a major respite to the ailing company that has an estimated AGR dues of over Rs 83,000 crore and an overall debt burden of around Rs.2.1 lakh crores. The mountain of debt has been a drag on the company’s operative profits and ability to raise funds.
The court order is also likely to reshape the structure and competitiveness of the third major player in the industry. As recently as May 19, this year the apex court had turned down the appeal of telecom companies to offer relief from payment of outstanding AGR dues. It had reiterated the finality of its earlier 2019 order.
Subsequently, the government has shown some intent to help the troubled industry by offering a moratorium, restructuring the dues and converting some debt into equity. Perhaps, the government felt that this is all it could do with the fear of 2G scam in the background.
Add to that the apprehension of favouring a private entity at the cost of the public exchequer. The government felt that its hands were tied. The issue of AGR has had a negative impact on the telecom sector in India. It has been a problem that has extended over decades. However, now the court seems to have taken a liberal view.
What has changed is the nature of ownership and stake holding in Vi. In early April this year, the government hiked its equity stake in the company to 49 per cent, becoming the single largest shareholder. It argued in the SC that public money is at stake and that probably prompted the court to give a free hand to the government to provide relief.
The Indian telecom sector is a shining example of what economic reforms can achieve. However, the industry has suffered due to policy flip flops, scams and exorbitant upfront fees for license and spectrum. Ironically, while the customers in India have derived enormous benefits due to cheap and competitive pricing of voice and data, the players themselves have spent years trying to match costs with revenues.
AGR is at the heart of a legal dispute between telecom companies and DoT. It is used as a basis to calculate the license fees and spectrum usage charges owed by operators to the government. The bone of contention has been about the kind and types of revenues to be included in the AGR.
The DoT has included core telecom revenues arising from calls, data and SMS and also non-core revenues such as rent, dividends and interest. The AGR definition became controversial and hit the brightest sector in the initial post reform period. The dispute was taken through the hierarchy of the Indian legal system-from tribunals to high courts, the Supreme Court and its bench.
The apex court, in a landmark judgement upheld the contention of the DoT in 2019. It decreed that the telecom companies pay in full huge accumulated dues of Rs1.47 lakh crore that included interest and penalties. The amount was to be paid out over a ten year period.
While the court order impacted all players, the hardest hit was Vi. Without funds it found it difficult to compete with its rivals. While Reliance Jio and Bharti Airtel rolled out 4G and then 5G, Vi lagged behind in technology adoption and in upgrading networks. Not surprisingly, it lost customers in the Indian market marked by cut throat competition for market share and fast growth.
By this order, the other telecom companies do not get any relief automatically. This has been made amply clear by the written order of the SC. Legal experts point out that the court has taken a cautious and limited view preferring case-specific relief for a distressed player rather than revisiting a settled economic principle. It raises multiple questions.
Whether or not AGR definition, levy of license and spectrum fees are policy matters that lie within the domain of the executive. That in order to get relief whether it is necessary for the government to own it. BSNL has been bailed out a number of times, totaling Rs 3.2 lakh crore since 2019 and there hasn’t been adequate debate on the issue.
The government has generally tried to avoid formation of a duopoly in the telecom sector. And rightly so, it is in the larger interests of customers. However, the two large private companies dominate the market. Yet the BSNL and to a lesser extent Vi provide alternative plans and schemes to customers. While the relief to Vi is welcome, its financial problems do not go away.
It is better if the government sets the house in order and gets out of its business as early as possible. This can only happen only when the private stakeholders rise to the challenges of turning around a firm that has been ailing for quite some time.
The government has the option to sell its equity to investors. However, this can happen only if the government ushers in a new era of telecom business that is transparent, equitable to all stakeholders and takes policy change initiatives and responsibility.
The author has four decades of experience in higher education teaching and research. He is the former first vice-chancellor of ISBM University, Chhattisgarh