Connect with us

Daily News

Final Verdict Of 14-Year Old Legal Battle With Govt. May Strain Telcos Further

The final verdict of a 14-year-old legal battle between the country’s mobile operators and the department of telecommunications over the definition of ‘adjusted gross revenue’ is near and may deal blow to debt-laden operators such as Bharti Airtel and Vodafone Idea which are already battling shrinking revenue streams.

AGR is the basis on which department of telecommunications (DoT) calculates levies payable by operators and then it has been a bone of contention in the sector. Telecom operators are liable to pay around 3-5% and 8% of the AGR as spectrum usage charges and licence fees, respectively, to DoT.

The matter has been under litigation for 14 years with operators arguing that AGR should comprise revenue from telecom services, but DoT insisting that AGR should include all revenue earned by an operator, including that from non-core telecom operations.

The battle started when telcos migrated to new system offered by the government in 1999 under which operators agreed to share certain percentage of revenue with the government.

The case has seen multiple judgments by telecom tribunals and the final hearing by the Supreme Court was held on 1 August, 2019. The final order is expected soon.

“We expect final verdict to come for AGR case while there has been some judgment on one-time spectrum charges, which may create certain payment liabilities for these telcos. We understand companies have not created any provisions against these liabilities, and any payments, if arise (though should be much lower compared to government claims), will put an additional strain on their already stretched balance sheets,” ICICI Securities said in a note dated 22 August.

If the government wins the case, then Bharti Airtel will have to cough up Rs. 21,682 crore and Vodafone idea will have to pay Rs. 28,308 crore. For Jio the amount will be just Rs. 13 crore as it entered the sector only three years ago. This amount includes interest, penalty and interest on penalty ballooning liabilities.

If telcos, who had secured a favourable verdict in the telecom tribunal, lose the case in the Supreme Court, it would mean a body blow for them as they are already engaged in a tariff war with Reliance Jio which has squeezed their margins.

Bharti Airtel Ltd posted its first quarterly loss in 14 years in the June quarter at Rs. 2,866 crore compared to a net profit of Rs. 97 crore in the year earlier as finance costs rose and it incurred a one-time loss of Rs. 1,445 crore. Vodafone Idea posted net loss of Rs. 4,873.9 crore in the June quarter. In comparison, Jio posted a profit of Rs. 891 crore.

“While TDSAT order reduces significant risk of payment by the operators, they will still need to make some payments. And if the Supreme Court order is extended to other telcos as well, they will be required to provide bank guarantees towards one-time spectrum charges,” ICICI Securities said.

Back in 2005, telecom industry body Cellular Operators Association of India had challenged the definition of the AGR and certain components included in the AGR as being contrary to Telegraph Act and the recommendations made by the TRAI.

COAI has alleged that DoT unilaterally changed the earlier understanding of the definition of revenue share to include the revenue received by the licensees from their non-licensed activity.

The industry body also contends that under the telecom licence issued to the licensees, there is no prohibition on the licensees from doing other business or from making investments on non-telecom business and the income, interest or dividend received from such investments cannot be added to the gross revenue of the licensed activities so as to claim a revenue share from those revenues of the licensee by DoT.―Livemint

Click to comment

You must be logged in to post a comment Login

Leave a Reply

Copyright © 2024 Communications Today

error: Content is protected !!