The story of the rise and fall of India’s telecom operators is almost like a Bollywood potboiler.
As erstwhile big daddies — Bharti Airtel, Vodafone Idea and Tata Teleservices — struggle to cough up thousands of crores within hours of a Supreme Court rap over non-payment of revenue share dues to the Department of Telecom (DoT), an industry insider rued the day when telcos had agreed to a switch over from an the earlier license fee regime to the present revenue sharing model. As per the current model, telecom operators have to pay a pre-determined share of their revenues to the government.
The calculation of the Adjusted Gross Revenue (AGR), from which the DoT is claiming a share, is at the centre of the dispute between the telcos and DoT. DoT’s stand has been that AGR includes revenue from telecom as well as non-telecom services while telcos have been arguing that only revenue coming in from telecom services should be shared with the government as per a set formula.
Last week, the Supreme Court showed its intense displeasure over telcos not depositing any of the revenue share amount and thereafter, DoT initially asked telcos to pay up the entire amount by midnight the same day.
An industry insider pointed out on Monday (February 17) that had the telcos not been in a tearing hurry to get relief from the earlier punishing license fee regime in the nineties, and had they read the fine print of the revenue share model minutely, perhaps their present day situation wouldn’t have been so troubling. So, in order to get relief from a previous taxing regime, the telecom companies agreed to comply with a new regime, which has proved to be even more devastating than the earlier one in hindsight.
Anyway, when the telcos did object to the DoT’s definition of what to include in AGR and the Telecom Regulatory Authority of India (TRAI) subsequently listing several revenue streams as being outside the calculation of AGR, the top court ruled against the TRAI definition of AGR, which excluded income from dividend, revenue from sale of immovable property and other fixed assets, income from property rent, etc.
Another dramatic twist in the tale is this: Had the telcos and the DoT settled the matter sooner, the payout wouldn’t have been this huge. The person quoted earlier said only about a fourth of the amount that the telcos are now expected to shell out was the original demand of DoT. The remaining three fourths has been added on over the years as penalty, interest and penalty on interest. The case of telcos disputing the mode of calculation of the AGR had been dragging on for nearly a decade-and-a-half till the top court decision last month against them.
So, a bulk of what the telcos are struggling to pay could have been avoided had the case been settled earlier or had the Supreme Court waived everything except the principal amount.
The DoT is believed to have estimated AGR payouts of a little over ₹90,000 crore from telecom operators but of this amount, only about ₹23,000 crore was the original revenue share amount, about ₹40,000 crore is interest accruing over the years on the disputed amount, around ₹10,000 crore of penalty and interest on penalty of nearly ₹17,000 crore. The Supreme Court has not allowed telcos any relief in terms of interest and penalty, etc.
As per industry insiders, the telcos are expected to complete part payment of their dues by end of Monday (February 17). Bharti Airtel has already made a payment of ₹10,000 crore; Vodafone Idea as well as Tata Teleservices are also expected to shell out some amount by evening.
The person quoted earlier said that only some of the total amount due was being paid because the exercise to calculate retrospective amount for each telecom circle was still not complete for any telco. India has 22 telecom circles and the calculations have to be done for at least a 15-year period for each circle.
The second reason telecom companies may be making only part payments could be their own version of what is due versus what the DoT expects. The industry insider explained that AGR dues are to be paid through self-assessment by each telecom company and once the assessment process is over, it is likely that the DoT would revert with its own calculations.
This is where the telcos are still hopeful of a government intervention. This person said that the general understanding within the industry is about government possibly allowing telcos to make staggered payments of the remaining amount (balance remaining after the payments made on Monday). He said this could possibly cushion some of the financial shock for telcos.
Yet another twist in the AGR tale has been the sword of hefty payments which now also hangs over non-telecom companies.
Meanwhile, news reports suggest the telecom department owes dues of about ₹48,500 crore from Oil India, ₹1.83 lakh crore from GAIL, ₹21,954 crore from the Power Grid Corporation and ₹15,020 crore from Gujarat Narmada Valley Fertilizers & Chemicals.
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It is evident that what one PSU — GAIL — is expected to pay exceeds the payout from the three cash strapped telecom operators. But another telecom industry veteran put the total payout by non-telecom PSUs at over ₹3 lakh crore and pointed out that time was running out for the government to step in.
He said the government should have come up with a “resolution plan” by now on how to prevent further stress to the telecom industry, public sector banks and tackle potential unemployment which would arise if even one telecom company were to fold up.
The industry veteran was referring to widespread belief that Vodafone Idea may not be able to sustain operations for long after a hefty AGR payout. The inevitability of a steep increase in tariffs by telcos hit by AGR payouts is anyway a given.