Temporary breather for telcos

Govt must keep in mind the long-term interests of the high-potential telecom industry

AuthorPublished: 5th Sep 2020  12:00 amUpdated: 4th Sep 2020  6:51 pm

The crisis-ridden telecom companies have nothing much to cheer about following the Supreme Court’s order giving them a ten-year timeline to clear huge adjusted gross revenue (AGR) dues to the government, amounting to Rs 1.6 lakh crore. This may at best serve as a temporary breather but doesn’t help save the sector that is rapidly collapsing under the weight of piling debts. The apex court rejected a 20-year payment timeline proposed by the central government. The dispute centres around the definition of the AGR and the way the figures are arrived at. Telecom companies pay a percentage of their revenues as a licence fee to the government. They argue that non-core businesses like rent or income from the sale of handsets or roaming charges should not be included in the revenue of which they pay a percentage. They want to pay only on revenue earned from their core business. However, the court did not concur with this argument. In its definition of AGR, the Department of Telecommunications (DoT) had said that telcos must cover all the revenue earned by them, including from non-telecom sources such as deposit interests and sale of assets. Last October, the SC had upheld the DoT’s definition of AGR and said since the licensee had agreed to the migration packages, they were liable to pay the dues, penalty on dues, and the interest on penalty due to delay in payments. The top court had then given the telcos three months to clear their AGR dues. Though the telcos sought a review of the judgment, it was dismissed by the top court.

The prolonged legal dispute over the AGR issue has dealt a severe blow to the telecom industry as 10 out of 15 operators have either closed their operations or are undergoing insolvency proceedings during the last 14 years. Given the changed dynamics in the sector, the profits for telcos are under pressure from severe competition and the falling ARPUs (Average Revenue Per User). Given this, the AGR dues will seriously hurt the financial stability of the telecom companies. Besides, the telecom equipment suppliers may also suffer. Moreover, the failure of a large number of players could lead to a near-monopoly situation. This may leave the consumer vulnerable to high pricing, sub-standard products and lack of options. Apart from impacting the banking sector, the collapse of the telecom industry may increase unemployment and reduce investments. There is a need to save the industry, which is critical to the government’s plans for a digital economy, including from the upcoming 5G spectrum auctions. The government should not be blinded by short-term revenue considerations but must keep in mind the long-term interests of the high-potential industry.

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