Telcos may have to spend Rs 1.25 trn on court cases, stare at huge loss

An adverse fallout of litigation on many unresolved issues in the Indian telecom sector may cost service providers a fortune. They might have to fork out Rs 1.25 trillion to Rs 1.5 trillion in important cases pending in the country’s courts, especially the Supreme Court. The government has filed the cases for recovering money.

The disputes, which have many twists and turns and have gone through courts and quasi-judicial bodies for many years, have some key issues. For instance, one is the definition of what constitutes adjusted gross revenue (AGR), which is the basis of determining licence fees and spectrum user charges (SUC), which telcos pay annually. The other is paying one-time spectrum charges, which was challenged by telcos. The third is the levy of penalty on telcos for allegedly not submitting the self-certification upon the upgrade of BTS (Base Transceiver Station) towers by another sharing telecom service operator. And so on. The payout will include not only their pending dues but the penalty they have to stump up and even the interest for the period of nonpayment based on State Bank of India’s prime lending rate plus 2 percentage points.

Telcos have debts of more than Rs 7 trillion. Their annual gross revenue in FY18 is expected to be around Rs 2.5 trillion, of which 20-22 per cent is their EBIDTA (earnings before interest, depreciation, taxation, and amortisation) margins. This means the amount they might have to shell out is about three times the EBIDTA of Rs 55,000 crore. Considering the fact that no one has made any provision to pay the money on the balance sheet, it could have a crippling impact on the industry. Rajan Matthew, director general of the Cellular Operators Association of India (COAI), said: “It will be a killer if we have to pay this amount at a time when the industry is finding it a challenge to even pay the deferred liability of spectrum payments, which they have bought through auctions. Especially when the telcos are contributing large revenues for the exchequer.”

According to sources, a reason why Reliance Jio’s deal to share the spectrum of RCom, which has closed mobile operations, is getting delayed is that the former wants clarification that it won’t be liable for paying any of these imposts if the plea of the telcos does not stand up in court. 

The highest amount of money is hinged to the definition of AGR. While the government’s position is that telcos should pay revenues on both telecom services and also non-core revenues, operators have contested the issue, saying they should pay only on telecom service revenues.

Telcos say the disputed amount, if the penalty and interest for non-payment are taken into consideration, is Rs 90,000 crore. They pay 3.5-5 per cent of AGR as SUC and 8 per cent of AGR as licence fee.

Similar is the dispute on one-time spectrum charges. On the basis of an order of 2012, the government issued notices the next year to all telcos that they had to pay one-time charges for spectrum they held beyond 4.4 Mhz. Under the earlier policy, telcos were given additional spectrum beyond 4.4 Mhz, based on increase in their subscribers. In that year the government’s demand from telcos was over Rs 20,000 crore. Telcos challenged the decision. As the case is pending, telcos estimate, with the addition of penalty and interest, it is at around Rs 40,000 crore.

While these are the prized cases, the Department of Telecommunications has 2,800 legal cases pending. Of those over 400 are in the Supreme Court. Lawyers representing telcos, however, point out the situation has come to this because officials take a very stringent interpretation on issues, which helps them to make heavy financial demands.