In a revenue-share model, a service provider cannot dip into the revenue meant for the government, be it under the head of bad debt written off, commissions or discounts paid to distributors, dealer, agents or franchisees, etc. Post the Supreme Court’s judgment of October 24, 2019, the two telecom operators - Bharti Airtel and Vodafone Idea - have started lobbying with the government for bailouts posing as if great injustice has been delivered to them. They are projecting themselves to be innocent. However, it’s their own non-payment of past government dues that has led to this situation.
Here are the facts.
In 1999, all the private telcos started pleading with the government that the licence fee they committed to pay to obtain licences, was high and unsustainable. The government then gave them the option to move to a revenue-share regime under which it was proposed that operators would provisionally pay licence fees at 15 per cent of the gross revenue (GR). It was also clearly stated that the GR would be the total revenue of the licensee company, excluding the interconnection-related call charges paid to BSNL / MTNL and service tax collected by the licensee on behalf of the government from their subscribers. After these two exclusions, it was called adjusted GR (AGR).
In all fairness, to arrive at the formula of AGR, the government circulated the draft of the licence agreement to the telcos. Finally, in 2001, the telcos signed the licence agreements agreeing to the definition of AGR. However, in 2003, most of the telcos filed petitions before the Telecom Dispute Settlement and Appellate Tribunal (TDSAT) challenging the definition of AGR. TDSAT pronounced its interim order on July 7, 2006, and said the government should have consulted the Telecom Regulatory Authority of India (TRAI) for defining the AGR. Then, DoT challenged TDSAT’s order before the Supreme Court.
On September 13, 2006, TRAI gave its recommendations to TDSAT. TRAI, while redefining AGR, also said this definition should be applicable from a prospective date. Since TDSAT’s order was an interim order and TRAI had in the meantime given its recommendations, the Supreme Court on January 19, 2007, dismissed DoT’s appeal and gave it liberty to approach TDSAT.
On August 30, 2007, TDSAT passed the final order accepting most of the recommendations of TRAI. TDSAT also gave the telcos some additional reliefs. It said the revised definition of AGR will be applicable from the date of filing of petition by telcos, instead of a prospective date.
DoT filed an appeal against the TDSAT judgment and cross appeals were filed by almost all the operators. Finally, on October 11, 2011, 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 said the tribunal can only look at the computation of demands raised by DoT and whether it was in accordance with the licence agreement or not.
With this judgment, the writing on the wall was crystal clear. The telcos knew that they would have to pay based on the agreed AGR. Around this time, as per CAG audit report for the period 2006-07 to 2009-10, total unpaid dues of six private telecom service providers on account of licence fees and spectrum usage charges (SUC) was Rs 5,213 crore.
But even if they wanted to contest legally, they could have paid LF & SUC “under protest” to save on interest, and penalties, which is almost now 70 per cent of the total demand of about Rs 1.20 lakh crore. They chose to delay the payment in the hope that they will be able to manage the system. They preferred to dip into the government’s money to expand their businesses in India and abroad.
For computation purposes, the matter came back to TDSAT. But once again, TDSAT, in its order of April 23, 2015, exceeded its jurisdiction and went on to redefine the AGR. DoT filed an appeal before the apex court and cross-appeals were also filed by various telcos. Finally, on October 24, 2019, a three-bench judge, in their unanimous order, allowed the appeal in its entirety in favour of DoT.
The 153-page judgment that set aside the TDSAT order, upheld DoT’s definition of AGR on each and every item of AGR. It said, “The definition of ‘gross revenue’ in clause 19.1 is inclusive, and it includes explicitly: installation charges; late fees; sale proceeds of handsets; sale proceeds of any other terminal equipment, etc.; revenue on account of interest; revenue on account of dividend; value added services; supplementary service as fixed charges; access or interconnection charges; roaming charges; revenue from permissible sharing of infrastructure and any other miscellaneous revenue."
The apex court also criticised TDSAT for getting into the definition AGR even after its 2011 judgment. It held that the tribunal has no jurisdiction to decide upon the validity of terms and conditions incorporated in a licence. The court said, “Even otherwise, on merit, the submission raised is baseless.”
The court observed, “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.”
The court dealt with each and every item of disputed AGR and decided in favour of DoT. Looking at telcos’ behaviour of non-payment, the apex court even upheld the levying of interest, penalties, and interest of penalties.
With two concurring judgments (2011 and 2019) from the Supreme Court, the government should not fall into trap of the two telcos and enforce the implementation of orders. In case, the government feels tha some relief should be given to the telecom sector, it can slash the reserve price of spectrum, which will lower cost of rollouts for these telcos and ensure efficient utilisation of idle but scarce resources.
(The writer is editor-in-chief of Telecom Live and founder of Telecom Watchdog, an NGO. Views are personal)Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd which publishes Moneycontrol