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Govt preps Rs 82,000 cr relief for non-telcos: Decoding the AGR dispute

New Delhi, Jan 24, 2025

Adjusted Gross Revenue is a crucial financial metric in India's telecom sector which represents the revenue telecom operators must share with the government under their licensing agreements

The Indian government is in the process of finalising a relief package exceeding Rs 82,000 crore for non-telecom companies grappling with adjusted gross revenue (AGR) dues, according to a recent report by The Economic Times. This retrospective relief, expected to be part of the broader telecom bailout package, could be announced as early as the Union Budget. It aims to exclude non-telecom revenues from AGR calculations, waive 50 per cent of interest, and eliminate penalties and interest on penalties, the report said.

Relief package: Terms and implications

The proposed package extends the 2021 telecom reforms retrospectively, offering a major reprieve to affected companies. Key components include 50 per cent waiver on interest and full waiver on penalties, the report said. Additionally, there will be a reassessment of dues based on revised AGR calculations.

This relief could be a game-changer for companies like Gujarat Narmada Valley Fertilizers Company (GNFC), Railtel, and Sify Tech, among others. Notably, 90 per cent of the dues are concentrated among 15-20 firms, with GNFC alone accounting for nearly 40 per cent.

The government emphasises that the relief is essential for the survival of many firms whose outstanding dues far exceed their net worth. However, a condition for availing this relief is the withdrawal of all ongoing legal challenges against the government.

Why were non-telecom firms included in AGR?

In 2020, the government demanded more than Rs 15,000 crore in AGR dues from GNFC, citing its possession of a telecommunications license. According to a regulatory filing by GNFC, the Department of Telecommunications issued a notice seeking Rs 15,019 crore by January 23 in 2020. These dues covered financial years from 2005-06 to 2018-19 and include interest charges.

GNFC operates under V-SAT (Very Small Aperture Terminal) and ISP (Internet Service Provider) licenses. V-SAT systems are commonly employed in Point-of-Sale devices and ATMs.

Separately, Railtel was categorised as an Internet Service Provider and a National Long-Distance Service Provider and was asked for the AGR dues.

According to the government, approximately 15 telecom operators are required to pay over Rs 1.47 trillion in AGR dues, with the possibility of this amount increasing. Industry estimates had suggested that non-telecom companies, holding nearly 3,500 licenses, could owe around Rs 2.28 trillion.

What is Adjusted Gross Revenue (AGR)?

Adjusted Gross Revenue (AGR) is a crucial financial metric in India’s telecommunications sector. It represents the revenue telecom operators must share with the government under their licensing agreements. AGR is calculated as the total revenue generated by telecom operators, including income from telecom and non-telecom sources such as services, interest earnings, and asset sales. From this gross revenue, permissible expenses are deducted, as outlined in licensing agreements with the Department of Telecommunications (DoT).

The legal contention surrounding AGR centres on whether non-telecom revenues should be included in the calculation. Telecom companies argue that AGR should encompass only revenue from core telecom services, while the DoT insists on including all forms of revenue. This definition of AGR is crucial for determining the license fees and spectrum charges owed to the government, which replaced the previous fixed-license fee model with a more flexible revenue-sharing mechanism. Ongoing disputes over AGR have far-reaching financial implications, affecting both telecom operators and the government, with billions of rupees at stake in terms of unpaid dues and future revenue sharing.

What is the AGR dispute?

The AGR saga began in 1999 when the government shifted to a revenue-sharing model for telecom operators. Disputes emerged over the inclusion of non-telecom revenues in AGR calculations. Operators contended only core telecom revenues should count, but the Department of Telecommunications (DoT) insisted otherwise. The Supreme Court’s 2019 verdict upheld the DoT’s definition, significantly impacting over 2,000 entities, including non-telecom firms like public sector units, broadcasters, and internet service providers.

While initial DoT demands exceeded Rs 4 lakh crore, the figure was revised after state-run firms like ONGC and PowerGrid were exempted. However, private companies, facing dues over Rs 86,000 crore, sought legal recourse, prompting the current relief measures.

Timeline of the AGR case

> 1999: The Indian government transitioned from a fixed license fee model to a revenue-sharing model for telecom operators, establishing AGR as the basis for revenue calculations.

>2005: The Cellular Operators Association of India (COAI) filed a challenge against the DoT's definition of AGR, contending that it should include only revenue from core telecom services while excluding non-telecom revenues like interest and asset sales.

>2007-2008: The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) ruled in favour of a narrower definition of AGR, excluding non-telecom revenues. However, the DoT contested this decision in the Supreme Court, asserting that TDSAT lacked jurisdiction to alter license terms.

>October 2019: The Supreme Court delivered a landmark judgment upholding the DoT's broader definition of AGR. It ruled that all revenues, including non-telecom income, must be included in the AGR calculation. This decision overturned TDSAT’s earlier ruling and required telecom operators to pay over Rs 1 trillion in dues within 180 days, causing financial strain for companies like Vodafone Idea and Bharti Airtel.

>January 2020: Telecom companies missed the Supreme Court’s deadline for clearing their AGR dues, prompting further legal action.

>July 2020: The Supreme Court reaffirmed its stance, refusing to allow adjustments to the dues calculated by the DoT and cementing its definition of AGR.

>September 2020: The court granted telecom operators a 10-year timeline to clear their AGR liabilities, rejecting the government’s plea for a 20-year repayment plan. This judgment required companies to begin annual installments from 2021, continuing until 2031.

>January 2021: Bharti Airtel filed a fresh application seeking corrections for alleged computational errors in the calculation of its dues.

What was the Supreme Court’s 2019 verdict on AGR?

The Supreme Court’s verdict in October 2019 had profound implications for the telecom industry. It upheld the DoT’s definition of AGR, mandating that all revenue sources, including non-telecom income such as interest, asset sales, and dividends, be included in the AGR calculation. This ruling overturned the TDSAT’s earlier decision, which had limited AGR to core telecom revenues.

The financial implications were significant, with telecom operators ordered to pay Rs 92,000 crore in outstanding dues within 180 days. This decision placed enormous financial strain on companies like Vodafone Idea and Bharti Airtel, raising concerns about their viability.

The immediate aftermath saw share prices of affected companies plummet, with some reporting record losses. The judgment also intensified calls for sector consolidation, as smaller players faced unsustainable financial burdens. Despite subsequent petitions for relief, the Supreme Court maintained its stance, reinforcing the finality of its ruling and limiting further legal recourse for operators.

What measures did telcos take to manage AGR liabilities?

In response to the 2019 ruling, telecom companies adopted various strategies to manage their substantial AGR liabilities. The government provided a temporary moratorium on AGR payments, which allowed operators to defer their dues until 2025. Beyond this, companies were allowed to repay their liabilities through staggered annual instalments starting from 2026. This arrangement was designed to ease financial pressure while maintaining the net present value of dues.

To alleviate cash flow issues, telecom operators sought government intervention, requesting waivers on penalties and interest associated with AGR dues. Debt restructuring became a key focus, with companies negotiating better terms with lenders and exploring fresh investments.

Additionally, cost-cutting measures were implemented, including operational efficiency initiatives and workforce optimisations. The sector also advocated for regulatory reforms to ensure sustainability, particularly urging a redefinition of AGR to exclude non-telecom revenues.

Government’s role in the AGR dispute

The government played a pivotal role throughout the AGR dispute and its aftermath. The DoT initially established the contested definition of AGR, which included both telecom and non-telecom revenues. This definition was central to legal disputes, with the government actively supporting the DoT’s position in court.

Following the Supreme Court’s 2019 ruling, the government proposed measures to ease the financial burden on telecom operators, such as staggered payments and moratoriums. However, these efforts did not include substantial waivers on penalties or interest, reflecting the government’s commitment to recovering revenue.

As of January 2025, proposals for partial waivers on AGR-related penalties and interest are under consideration. These measures could provide much-needed relief to companies like Vodafone Idea, which faces the largest liabilities.

[The Business Standard]

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