SC orders private telcos to pay Rs92,000 cr to govt as revenue share
25 Oct 2019
1
The Supreme Court today upheld the Department of Telecommunications' definition of what constitutes adjusted gross revenue of telecom companies, handing a Rs92,000-crore windfall to the government and giving a huge blow to private telcos who have been running losses for the past many quarters.
The disputed licence fee, which was about Rs23,000 crore originally, has grown to Rs92,000 crore after the apex court allowed the government’s clam of interest and penalties.
Private telcos such as Vodafone Idea Ltd and Bharti Airtel Ltd will have to make hefty payments to the government by way of licence fee dues and penalties. The order could wipe out the entire Rs21,000-crore cash balance that Vodafone Idea reported at the end of June.
For the government, however, the windfall would help fund the proposed revival plan of state-run telcos – Bharat Sanchar Nigam Ltd (BNL) and Mahanagar Telephone Nigam Ltd (MTNL).
The revival plan involves a merger of the two firms, a fund infusion of Rs20,000 crore by the government and a Rs30,000 crore voluntary retirement scheme for employees, besides other measures such as asset monetisation and allotment of 4G spectrum.
The apex court has ruled that all revenues, except for termination fee and roaming charges, will be a part of the adjusted gross revenue. This, according to estimates, will bring a Rs90,000-crore additional burden on telecom companies, the bulk of it coming from Bharti Airtel and Vodafone Idea.
Analysts say the payout could push telcos into bankruptcy. Worries about debt defaults by telcos have already led to a fall in shares of banks such as State Bank of India, which was down over 4 per cent in day trade.
Shares of Voda Idea crashed by 26.6 per cent on the National Stock Exchange on Thursday, while those of Bharti Airtel rose by about 3 per cent, as investors started pricing in the possibility of a two player market.
The government must find ways to mitigate the impact of the Supreme Court's verdict to include non-core revenue for calculating fees to be paid by telecom companies to the centre, Bharti Airtel Ltd said in a release.
"The TSPs (telecom service providers) have invested billions of dollars in developing the telecom sector and providing world-class services to consumers. This decision has come at a time when the sector is facing severe financial stress and may further weaken the viability of the sector as a whole," Bharti Airtel said.
Telecom companies pay a percentage of revenue as spectrum charges. While the government sought to include revenues from non-core businesses of a telecom company for calculating the charges, the companies wanted the formula to include revenue only from their core business.
The government and telecom companies have been in a legal battle since 2005 with regard to definition of adjusted gross revenue and the categories of revenue which can be subsumed within its ambit.
"The issue of inclusion of revenue from non-telecom activities and interpretation of the heads included in the definition of AGR (adjusted gross revenue) under the licence conditions has been through several rounds of litigation, which have been in favour of the TSPs (telecom service providers) till now." Bharti Airtel said.
Vodafone-Idea said it will explore grounds to file a review application after the Supreme Court ordered the telcos to pay an estimated Rs92,000 crore in dues
"We will study the ruling as soon as it is available, along with our legal advisers, to determine next steps. If there are technical or procedural grounds for doing so, this could include a Review Application", a Vodafone-Idea spokesperson said.
The spokesperson added Vodafone-Idea is extremely disappointed by the Supreme Court judgment on the Adjusted Gross Revenue (AGR) case.
The matter is 14 years old and pertains to the issue of whether revenue from other non-telecom-related activities should be included in the AGR definition under the telecom licence conditions.
The matter has already been through several rounds of litigation, which have been largely in favour of the operators until now.
"Clearly this judgment has significant damaging implications for India's telecom industry, which is already reeling under huge financial stress and is left with only four operators.
"Significant investment of several billion dollars has been made in creating world class networks. Today's order has huge impact on two private operators while most of the other impacted operators have exited the sector.
"We urgently request that the government engage on this matter in order to find ways to mitigate the financial stress for the industry," it said.
