What are AGR dues and how it threatens Vodafone-Idea's very existence

India's telecommunication network is the second largest in the world with more than a billion subscribers. But the prevailing situation of telecom companies is alarming. 

Vodafone-Idea last week reported widening of losses to Rs 6,438 crore in the October-December 2019 quarter against Rs 5,004 crore in the same period a year ago. The company earlier reported a massive net loss of Rs 50,922 crore for the three months ended September 30, 2019, the highest-ever in a quarter by an Indian company. 

This month, Bharti Airtel also reported December-quarter loss of Rs 1,035 crore. The December Q3 scorecard marked the third straight quarter of losses for the company, which had logged a net profit of Rs 86 crore a year ago.

Ever since Reliance Jio started operations in September 2016, the telecom market saw a huge decline in tariff rates and reduction in data charges, which changed the economics for some telecom players. Many smaller players were forced to exit from the market, as a result. 

Jio offered cheap data and talk time to woo customers.  As of November 2019, it is the largest mobile network operator in India with over 360 million subscribers. 

But this in turn forced rivals to follow suit in order to retain their customer bases, and ended up making losses in the process. To make matters worse, AGR (Adjusted Gross Revenue) kicked in, even as telecom companies were struggling to take on Jio.

Now what exactly is AGR?

AGR is the basis on which the Department of Telecom calculates levies payable by operators. Basically, it is a metric calculated from a company's gross revenues and is used to determine the levy that be imposed on the income

The AGR issue is a 14-year-old case that had mobile operators locked in a legal battle with the government over the definition of of the term.

While the telecom providers insisted that AGR should only include revenue from core operations and that other sources should be excluded, the Department of Telecom (DoT) maintained that AGR also embraced non-core revenue from the sale of assets, interest on deposits, rental income and such like. 

Ending this legal tussle, the Supreme Court on Oct 24, last year rejected telcos' definition of adjusted gross revenue (AGR) and held that telecom service providers have to pay now fines and penalties on the unpaid fees, other than termination fee and roaming charges.

The apex court allowed the Centre to recover over Rs 92,000 crore from the already financially stressed telecom industry within three months. The order came as a major blow to the two incumbent operators — Vodafone India and Bharti Airtel — and also forced them to hike tariffs.

Last week, the Supreme Court slammed mobile carriers for non-payment of dues and threatened them with contempt proceedings if they didn’t pay up by March 17.

The court, which had asked Vodafone Idea and Bharti Airtel among other companies to pay 92,000 crore rupees ($12.89 billion) in overdue levies and interest by January 23, had rejected petitions seeking a review of its order last month.

The move threatens the survival of Vodafone-Idea, a joint venture between Britain’s Vodafone Group Plc and India’s Idea Cellular, as the unit is saddled with about $3.9 billion in overdue payments. The Supreme Court had on Monday even denied it protection from the invocation of the bank guarantee by the DoT, in case it failed to pay up the dues linked to AGR.

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