Telecom and Postal Sector – Spectrum Allocation, Call Drops, Predatory Pricing, etc

Adjusted Gross Revenue (AGR)

Prelims Only | Economics | Mains Paper 3: Infrastructure: Energy, Ports, Roads, Airports, Railways Etc.
Note4Students

From UPSC perspective, the following things are important :

Prelims level: Adjusted Gross Revenue (AGR)

Why in the News?

The Supreme Court has dismissed the curative petitions filed by major telecom service providers, seeking relief from the 2019 judgment regarding Adjusted Gross Revenue (AGR) dues.

What is Adjusted Gross Revenue (AGR)?

  • AGR is the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT).
  • It forms the basis for calculating telecom companies’ dues to the government, including the license fee and spectrum usage charges (SUC).
  • The AGR is divided into:
  1. Spectrum Usage Charges (SUC): These are pegged at 3-5% of AGR, depending on the telecom company’s spectrum holdings.
  2. License Fees: Telecom operators are required to pay 8% of their AGR as a license fee to the government.

Contention over AGR Calculation

  • The DoT maintains that AGR should include all revenues earned by telecom companies, including non-telecom sources such as deposit interest, asset sales, and dividends.
  • Telecom operators, on the other hand, insist that AGR should only include revenues generated from core telecom services, excluding income from non-telecom sources like interest and capital gains.

Legal Disputes on AGR

  1. Beginning of the Dispute (2005): The AGR saga began in 2005 when the Cellular Operators Association of India (COAI) challenged the government’s definition of AGR in court. The dispute centered on whether non-telecom revenue should be included in the AGR calculation.
  2. TDSAT Ruling (2015): In 2015, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) ruled in favor of telecom companies. TDSAT held that AGR should include only revenue from core telecom activities and exclude non-core sources such as rent, profit from the sale of assets, dividends, and interest income.
  3. Supreme Court Ruling (2019): Setting aside the TDSAT decision, the SC upheld the DoT’s definition of AGR on October 24, 2019, declaring that AGR must include all revenue sources, including non-telecom activities like interest and capital gains. This ruling significantly increased the financial liabilities of telecom companies, as they had to pay outstanding dues.

Financial Impact of the AGR Ruling

The Supreme Court ruling had serious financial implications for telecom companies:

  • Massive Liabilities: Telecom companies, especially Vodafone Idea and Bharti Airtel, faced huge financial liabilities. The ruling resulted in unpaid dues amounting to over ₹1.4 lakh crore, which included penalties and interest.
  • Vodafone Idea’s Crisis: Vodafone Idea, in particular, was hit hard by these liabilities and faced potential insolvency, with its future in the Indian telecom sector hanging in the balance.
  • Sector Consolidation: The financial pressure from the AGR liabilities led to the consolidation of the telecom sector, with smaller players exiting the market.

PYQ:

[2019] In India, which of the following review the Independent regulators in sectors like telecommunications, insurance, electricity, etc.?

  1. Ad Hoc Committees set up by the Parliament
  2. Parliamentary Department Related Standing Committees
  3. Finance Commission
  4. Financial Sector Legislative Reforms Commission
  5. NITI Aayog

Select the correct answer using the code given below:

(a) 1 and 2

(b) 1, 3 and 4

(c) 3, 4 and 5

(d) 2 and 5

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