The Supreme Court has chosen the middle path in its judgment on the Adjusted Gross Revenue (AGR) issue. On Tuesday, the apex court allowed telecom operators 10 years to pay up dues related to AGR.
A three-judge apex court bench directed telecom operators to make 10 percent upfront payment of their AGR dues, and the timeline for staggered payments will start on 1 April 2021.
The news may not be good for Vodafone Idea Ltd, who along with Bharti Airtel had sought for 15 years to repay the amount. While Bharti Airtel may not be affected much by the judgement, Vodafone Idea with its stretched balance sheet may find it difficult to survive.
As per Bharti Airtel’s assessment, it owes Rs 13,004 crore to Department of Telecommunication (DoT) which it has already paid along with Rs 5,000 crore in ad-hoc payment. DoT, however, has assessed Bharti’s dues at Rs 43,780 crore.
Vodafone, on the other hand, owes over Rs 58,000 crore in AGR dues and has said that it does not have the money to pay it. The company had requested 15 years to pay the amount the Supreme Court judgement and it would be very difficult for the company to survive, expand and grow at a time when the competition is getting ready for the launch of 5G technology.
Reliance Jio Infocomm had paid its dues of Rs 195.18 crore in January, complying with the Supreme Court’s judgement last October.
The Vodafone Idea stock price movement post the judgement highlights the stress. The stock fell sharply, even briefly hitting the 20 percent lower circuit, while its competitor Bharti Airtel has rallied quite a bit. The stock of Reliance Industries, the parent company of Reliance Jio, was also up.
The Supreme Court, as mentioned earlier, has walked the middle path. The department of telecommunications (DoT) had in March sought 20 years for payment of AGR dues, including spectrum usage charge, license fee, interest, penalty and interest on the penalty. The Supreme Court, rightly, lashed out at the DoT for seeking a 20-year period especially since some companies had asked for only 10-15 years while others had asked for 7-10 years. The dues should not have been allowed to be accommodated in the first place.
Telecom players have been dragging the issue since 2011 in the hope of a favourable judgement. The case has been going on since October 11, 2011, when the Supreme Court held that TRAI and TDSAT cannot define AGR, and ruled out any relaxations after telecom service providers signed the licences.
The court had made it very clear that the tribunal can only look at the computation of demands raised by DoT and whether it was by the licence agreement or not.
The telecom operators had a chance to pay up the amount and align themselves with the court ruling. The CAG audit report for the period 2006-07 to 2009-10 had put the total unpaid dues of six private telecom service providers on account of licence fees and spectrum usage charges (SUC) at Rs 5,213 crore. This amount shot up to over Rs 1.7 lakh crore by 2019.
In its earlier order, the Supreme Court observed that “Parties understood right from the beginning that the gross revenue does not exclude discounts, commissions, rebate etc. and specific challenge made to the same had not been accepted in 2011. Now once again by the circuitous method, impermissible attempt has been made to rewrite the definition of gross revenue.”
Telecom operators tried every trick in the book to delay the payment. Many players went bust without paying the rightful fees to the government. The ones that remained had enough opportunity to provide for this amount in their books, but instead, they decided not to pay up and utilised the amount elsewhere. These telecom players even resorted to blackmailing the government saying they would not participate in the 5G spectrum sale if they are made to pay the AGR dues.
Thankfully, the Supreme Court did not fall for these tricks and has demanded payment from the companies.
After the judgment, banking stocks have also recovered in the hope of getting their dues back. The staggered payment still leaves some hope of recovering their money.
A long-pending issue has been resolved and the telecom sector now has the coast clear to plan for the future. With the price war behind it, the stronger players in the sector are well entrenched to benefit from increased data usage and launch of new technology.
Disclaimer: Reliance Industries Ltd., which also owns Jio, is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.