Blow to telecom service providers as SC rejects plea over AGR definition

SC says all revenues except termination fee and roaming charges will form part of AGR

Ending a legal tussle that lasted for more than a decade between the Union government and telecom service providers, the Supreme Court (SC) on Thursday dismissed a plea moved by firms challenging the definition of adjusted gross revenue (AGR). The verdict allows the government to recover Rs 92,000 crore of AGR from the already financially stressed telecom industry that includes many operators who’ve already gone out of business or are under insolvency proceedings.

The payout by telcos could rise to an estimated Rs 1.33 trillion once spectrum usage charges (SUC) linked to AGR are taken into account.

Incumbent telcos Bharti Airtel and Vodafone Idea reacted strongly to the judgment. While Bharti believes it would weaken the viability of the telecom sector, Vodafone has said it may consider filing a review application. Shares of Bharti Airtel and Vodafone Idea reflected the verdict’s adverse impact on the telcos during the day, but recovered later.

Upholding the definition of AGR as determined by the Department of Telecommunications (DoT), a three-judge Bench headed by Justice Arun Mishra said the telecom service providers would have to pay fines and penalties on the fees not paid.

“Once an amount of shortfall has not been paid, it has to carry 50 per cent of the penalty on defaulted amount, as agreed. Thus, we find no substance in the submission that interest, penalty, and interest on penalty cannot be realised. It is (in accordance with) the agreement. In the facts and circumstances, we find no ground to reduce the same, considering the nature of untenable objections raised on behalf of the licensees,” the Bench said.

The Bench made it clear there would be no further litigation on the issue, and that it would set a timeframe for calculating and paying the dues.

Vodafone Idea, which is likely to be the worst-hit, said in a statement it was studying the judgment and would file a review application if “there are technical or procedural grounds for doing so”. Vodafone’s AGR dues (without counting the SUC) is estimated at Rs 19,823.7 crore. Idea Cellular’s dues are pegged at Rs 8,485 crore, making it a total of more than Rs 28,000 crore for the two partners.  

Airtel said: “TSPs (telecom service providers) have invested billions of dollars in developing the telecom sector and providing world-class services to consumers. This decision has come at a time when the sector is facing severe financial stress and may further weaken the viability of the sector as a whole.” Airtel needs to pay an AGR of Rs 21,682.1 crore (without SUC).  

The Tatas, which sold Tata Teleservices (TTSL) to Airtel, also has AGR dues of Rs 9,987 crore. While the Tata group did not comment, the onus of paying the dues may fall on the original owners, according to its agreement with Airtel, sources pointed out. In the case of RCom, which is in the bankruptcy court, there may not be any liability on the promoters. However, the DoT can approach the resolution professional to make a demand. RCom has licence dues of nearly Rs 16,500 crore. 

The Cellular Operators Association of India said it was “the last straw in contributing to financial distress”. While the debt on the books of the telcos is around Rs 4 trillion, that of the overall industry (including those out of business) would exceed Rs 7 trillion. Following the news, the shares of Airtel and Vodafone Idea plummeted nearly 10 per cent and 24 per cent, respectively. While Airtel eased back to 3.31 per cent higher at Rs 372.45, Vodafone Idea closed 23.36 per cent lower Rs 4.33 on BSE.