AGR dues and the Indian Telecom Industry
Today, Engineer Explains takes on the Indian Telecom Industry and its struggle with the Annual Gross Revenue (AGR) dues.
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The Supreme Court of India on Tuesday, September 1st, 2020 gave telecom companies 10 years to pay back the dues owed to the government in the form of adjusted gross revenue. These dues amount to a total of roughly Rs 1.48 lakh crore.
Adjusted Gross Revenue (AGR) is the amount charged by the Department of Telecommunications (DoT) for the usage of airwaves and licensing fees. The Telecom sector was liberalized in 1994 under the National Telecom Policy (NTC). Through this policy, licenses were distributed to different companies under the Indian Telegraph Act of 1885. Under this law, telecom companies were required to pay a fixed annual licence fee for licences granted to them. As per the new policy, 15 percent AGR was fixed as the licence fee under the revenue-sharing model, which was later reduced to 13 percent and then 8 percent in 2013.
Talking about the dispute, it centers around the definition of the term AGR. While DoT claims a share of the total revenue of the telcos, telcos argue that non-core businesses like rent or income from the sale of handsets or roaming charges should not be included in the revenue of which they pay a percentage. This definition was challenged by the telcos on multiple forums including the Supreme Court after which the top court had then given them three months to clear their AGR dues.
Now we will discuss the three major telcos of the nation Bharti Airtel, Vodafone Idea, and the latest carrier Reliance Jio. Bharti Airtel owed nearly Rs 43,000 crore in dues out of which it has already paid Rs 18,000 crore. Vodafone Idea has paid a total of Rs 7,854 crore to DoT against its total AGR dues of around Rs 58,000 crore while Jio had cleared its own AGR dues of ₹195 crore.
This ruling is a sigh of relief for Bharti Airtel who was facing huge losses. Bharti Airtel should be able to pay its dues, considering that it has already paid a major chunk of its dues. Now that the dues have to be paid in a span of 10 years, the company can make the payment in portions without affecting their cash flows.Â
On the other hand, Vodafone was looking forward to a 20-year payment cycle which has now reduced to 10 years. Factoring in the high annual interest rate and the fact that out of the total AGR dues of ~Rs.58,000 cr Vodafone Idea has paid only ~Rs.7,900 cr till now, the company would not be in a comfortable position considering chairman of Vodafone Idea Kumar Mangalam Birla had warned in December that the company was headed towards insolvency.
Post the judgment, Bharti Airtel shares jumped 6% to become the top Sensex gainer while Vodafone-Idea encountered a fall of 20% value.
Although all is not dark for the telecom industry. According to TRAI's Q4FY2020 report, telcos' gross revenue stood at Rs67,533.74 cr in the quarter ending March 2020, rising by 5.91% from the last quarter. Moreover, according to TRAI, average revenue per user for wireless services increased by 16.33% QoQ and 28.15% YoY.
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