Explained: Hike in telecom prices

Introduction: Network services set to get expensive by about 40%

About after 3 years the telecom operators are to hike the mobile tariff. Vodafone idea will
raise mobile tariffs by 20-30% for its prepaid services, Bharti airtel by 42% and Jio up to
40%. On 24th October the honourable Supreme Court had delivered a judgement in relation to
the licensing agreement between telecom companies and the Department of Telecom (DoT).
The court gave judgement in favour of department of Telecom and accepted the explanation
of adjusted gross revenue presented by DoT which have argued that a wider number of items
- interest income, dividend, profits on the sale of assets, insurance claim and forex gains -
should be included as components of AGR while Telecom companies argued that the revenue
generated from non-core activity should not be include in the adjusted gross revenue. The
court had pronounced that the various revenue heads were comprised within the net gross
revenue.

Background of this issue: When prices fell suddenly in 2016 (Jio was
introduced)

As per report by Swedish telecom equipment maker Ericsson, India has the world’s highest
data usage per smartphone at an average of 9.8GB per month. In the phase of just three years
monthly data consumption in the country hiked 15 times. The entry of Mukesh Ambani led
reliance Jio in 2016 created a wave of massive transformation in the Indian telecom industry.
Prior to reliance Jio’s induction in the Indian telecommunication market the telephony
segment was used to dominate by some telecom companies like Idea, Vodafone, airtel, BSNL
and etc. when Jio had entered into the Indian telecom market it started providing free 4G and
voice calls. The whole country was socked with the free services provided by the Jio. In just
few days a lot of people switched to Jio and other telecom companies started facing loss since
the first day of its induction in the market. The free 4G and voice call service was free for 6
months and later the telecom regulatory body TRAI stopped it from extending its free
services. After that reliance Jio started charging very minimal tariff for free calls and 4G net
and consequently the rival telecom companies which were already debt-ridden also started
following its step and dropped their tariff to very drastically and end up more debt burdened.

Reasons for current hike in price: SC's judgement on 'adjusted gross revenue'.
There was a dispute spanning nearly two decades between Department of Telecom and Telecom
companies regarding the interpretation of ‘Adjusted Gross Revenue’. The apex court has
given judgement in favour of the department of Telecom and accepted their interpretation of
‘Adjusted Gross Revenue’. In its judgement the Supreme Court implied that the telecom
companies will have to pay their dues and also have to include non-core items in the
definition of ‘Adjusted Gross Revenue’. it means at the time of paying revenue share the
telecom service provider have to include the revenue generated from unlicensed activity
should also be included in Adjusted gross revenue. After this judgement the debt over the
telecom companies have ultimately hiked to very critical level. This can be comprehended as
a worst phase of telecom industry in India.
After this adverse judgement of the apex court the telecom companies came under burden of
almost Rs.1.42 lakh crores including Rs. 92,000 crores of licence fee, spectrum usage charge,
penalty and interest which creates a financial crisis like situation in telecom sector. Vodafone
idea may need to pay approx. Rs. 40,000 crores after including licence fees and spectrum
usage charges, while Bharti Airtel may need to pay 42,000 crores. Jio may face a burden of
14 crores. And the remaining amounts have to cop-up by other telecom operators like BSNL,
MTNL and et cetera. Consequently the telecom companies have needed to raise the tariff to
face this acute financial crisis situation in the telecom sector.

Its effects in India

Adjusted Gross Revenue

Adjusted Gross Revenue refers to an income which is adjusted by excluding some item to
make standard deductions. In telecom sector AGR has very important role in making
payment to the government the revenue share fee. There was a dispute regarding
interpretation of AGR between Department of Telecom and telecom companies.

The license for providing telecom service was granted by Department of telecom (DoT) on
behalf of the government to various telecom companies against the consideration of fixed

license fee. In order to simplify the steep fixed license fee, in 1999 the government
substituted the license fee with revenue sharing fee model. According to this the telecom
companies were need to share a specific percentage of adjusted gross revenue with the
department of telecom as the license fee and spectrum usage charges. The license fee were
fixed at 8% and spectrum usage charge at 3-5%.