A lot of chatter has been going-on about Telecom companies these days. With Silicon Valley giants such as Facebook and Amazon putting money in the industry, Supreme Court hearings with DOT, heavy AGR dues on Airtel and Voda-Idea, and what not, for many of us the issue has become as clear as mud.
CRISIS OF INDIAN TELECOM INDUSTRY
The issue is not recent, it is a 15-Year-old battle that started in 2005 when the association of Telecom companies challenged the Department of Telecom’s definition of AGR dues. DOT being very opportunistic, levied the Spectrum usage charge and the license fee on Telecom (Call, SMS, and the Internet) as well as Non-Telecom services ( Handset Sales, Deposit Interest, Asset Sales, Scrap Sales). This definition of AGR by DOT was a major setback for the already indebted Indian Telecom Industry. Telecom Companies believed that the charges must be levied only on Telecom services and not on both Telecom and Non-Telecom services. The conflict of the definition of the AGR led to 15 Year long court battle between DOT and Cellular Operators Association of India (COAI).
A body TDSAT (Telecom Dispute Settlement and Appellate Tribunal) was formed to hear both sides and hence give a decision. Well, the court battle stretched for years but finally, in 2015, TDSAT gave its decision which DOT didn’t agree. DOT challenged the TDSAT’s decision and filed an appeal before the Supreme Court, citing that the TDSAT had no jurisdiction on the validity of terms and conditions of licenses. In Oct’19, Supreme Court supported the definition of the Adjusted Gross Revenue (AGR) as stipulated by the Department of Telecom (DOT). The court asked the companies to settle their dues within 3 months of the time frame.
Interestingly, the amount includes not just the shortfall in AGR for the past 15 years but also the interest on that amount along with penalty and also the interest on that penalty. It is estimated that out of the total amount, the actual dues are just only 25%, while the remaining amount is interest and penalty.
WHY IS IT A BIG BLOW TO VODAFONE-IDEA?
With the cheap data charges, the Telecom companies have seen a decline in their revenues. The market capitalization of Vodafone-Idea has declined from Rs65K Crore in Q3’FY19 to Rs19K Crore in Q3’FY20. Vodafone-Idea owes the major chunk of AGR dues i.e. Rs 53K Crore which is way more than its market cap. The situation is challenging for Telcos and survival for companies like Vodafone-Idea has become a question.
Bharti Airtel owes Rs 21K Crore. Tata Group due’s for TTSL are pegged at Rs 16.7 Crore while the dues for Reliance Jio is around Rs 70 Crore. These figures are as per the DOT’s definition for AGR dues however the self-assessments by the telcos depict different figures.
DOT has received Rs 25.9 Crore so far in instalments. The deposited dues stand at Rs 18K Crore for Bharti Airtel, Rs 6K Crore for Vodafone-Idea, and Rs 4K Crore for Tata led TTSL.
APPREHENSIONS OF THE GOVERNMENT
• When the nation is moving towards smart technologies, the health of these Telecom companies matters the most. The Indian Government has introduced the Digital India Initiative under which the sectors such as healthcare, retail, etc. will be connected through the internet. Apart from this, public policies such as DBT, UPI, Jan Dhan Yojna, etc have been majorly skewed towards the Digital India Initiative and hence these telecom companies have become the major stakeholders contributing directly towards the welfare and development of the nation.
• Also, the government fears the duopoly of Reliance Jio and Bharti Airtel considering that Vodafone-Idea files bankruptcy.
WHAT IS THE PRESENT RULING?
As per the Supreme Court ruling on 11th July, the definition of AGR remains the same however the Telcos have been provided with a reasonable time frame of 20 Years to pay their dues. The Telcos will be presenting the staggered payment schedule to SC in the next hearing which is scheduled for the first week of July.
Supreme Court on PSU: As per the last hearing on the AGR dues, the SC bashed DOT for its AGR demands from PSUs. SC unequivocally presented its thoughts and asked DOT to reevaluate its demands. As per 18th July, the DOT has given a big relief to PSUs and withdraw its AGR demands.
WHAT LIES AHEAD?
India is currently the world’s second-largest telecommunications market with a subscriber base of 1.20 billion. It has the highest data usage per smartphone at an average of 9.8 GB per month. The number is expected to grow to 18 GB per month by 2024. With such a promising market, no company would want to miss the opportunity to operate in India. Lately, the industry has garnered a number of investments from the west. Giants such as Facebook, Amazon, Silver Lake, etc are betting on Indian Telcos. All these investments are giving enough hints for the future of the Telecom companies in India. Reliance has managed to wipe off its massive Rs 1.6 Lakh Crore debt, readying itself for a massive 5G launch.
“India is so big. Maybe in 10 years, we can have a factory in every state”
Terry Gou – (Founder and Chairman, Foxconn)
Dependence on the Telecom Industry has increased during the lockdown. A lot of people are working from home, doing financial transactions, purchasing essentials, receiving relief from the government thorough Direct Bank Transfer (DBT), etc. When businesses are finding it hard to operate during this period, Telecom Industry is one of the very few spaces where companies have managed to do good business and perform well.