Context

As the dust settles after the Union budget and the Supreme Court’s decision to not provide relief to telcos from their licence fee liabilities, it is an appropriate moment to step back and examine how we got here.

The issue over the definition of AGR (Aggregate Gross Revenue)

• What is AGR issue: Since the New Telecom Policy of 1999 (NTP 1999), operators were required to pay a percentage of their AGR to the government as licence fees instead of a one-time licence fee.
  • License fee based on earnings: This was done in exchange for moving operators from fixed licence fee-based on irrationally exuberant bids they had made in the mid-nineties-to a regime that determined licence fee based on revenue earned, thereby de-risking the obligation.
  • Why it matters? What constitutes AGR is important for the purpose of the computing licence fee and thousands of crore are dependent on this.
• Consequences of ambiguity over the definition of AGR: Bundling – a pervasive phenomenon in most telecom markets have not taken off in India.
  • What is bundling? Product bundling is a marketing strategy that involves offering several products and/or services for sale as one combined product.
  • The fear is that handset sales will also come under the purview of AGR. Handsets, it could still be argued are part of the service offering.
  • Dividend on earning is considered as the part of AGR: Interest and dividend earnings on investments have also been included in AGR.

Unfair practices and cancellation of licences by the court

• Controversy over conversion charges: In 2003, “limited” mobility service was converted into a fully mobile service with a one-time payment of Rs 1,658 crore as “conversion” charges, generating controversy. It was labelled as a “back door entry” to full mobility.
• Disguising international calls as domestic: Around the same time, the DoT used to levy a fee of Rs 4.75 per minute on international calls known as “access deficit charge” (ADC) to fund universal coverage. It is well known that an operator disguised international calls as domestic to bypass ADC.
• Showing call revenue as internet services revenue: For some time, internet services attracted lower or no licence fee and it became expedient for operators to indulge in license fee “arbitrage” by showing more revenue from internet services.
• Inflating subscriber numbers: Another manoeuvre was to inflate subscriber numbers to gain access to scarce spectrum in the days when fresh spectrum was administratively assigned based on subscriber numbers.
• First come first serve policy: Finally, the shameful spectacle was the battle fought by operators to jump the queue to deposit earnest money for gaining rights over the spectrum that was oddly sought to be assigned by a method called “first come first served” and whose definition itself was quite elastic.
• Cancellation of licence by the Court: Thereafter, in the litigation that inevitably followed, the Court cancelled 122 telecom licences and mandated allocation of spectrum by auction.

Conclusion

• Erosion of trust between the public and private sector in general and in the telecom sector, in particular, has been a negative externality of the reform process.
• Restoration of trust between public and private sector is necessary: In this context, the appeal made by the finance minister during her budget speech for the restoration of “vishwaas” between the public and private sectors and between citizens and government is critical

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