related to the issue of Adjusted Gross Revenue (AGR) and the disputes between the Department of Telecommunications (DoT)

and
telecom operators.

The liberalization of India's telecom sector in 1994, as you mentioned, was a significant milestone in the industry's history. The shift
from fixed annual fees to a revenue-sharing model and the subsequent disputes over the definition of AGR have been long-standing
issues in the sector.

The Supreme Court's verdict in favor of the DoT in October 2019, which expanded the AGR definition, indeed had significant
financial implications for the telecom operators. This led to substantial AGR-related dues being demanded from them.

The timeline for payment of these dues was initially extended to 10 years by the Supreme Court in September 2020, but the issue
persisted due to disputes over the calculation of the owed AGR dues. The Supreme Court's dismissal of the plea for a
recomputation of fees in July 2021 meant that the telcos were required to pay the outstanding sums by March 31, 2031.

In response to the challenges faced by the telecom operators, the central government introduced a relief package in September,
which included options like a spectrum payment moratorium and equity conversion, among other provisions. Vodafone Idea was the
first telecom company to avail of the equity conversion provision.

These developments reflect the complex and evolving nature of India's telecom sector, which plays a crucial role in the country's
economic and technological growth. The ongoing challenges and policy changes have significant implications for the financial health
of telecom operators and the competitive landscape of the industry.
The tussle started when telecom operators migrated to a new system offered by the government in
1999. This new system came to know as revenue sharing model. Under this, they agreed to share a
certain percentage of revenue with the government as a spectrum & licence fee. The revenue from
which telecom operators agreed to share with the government is AGR. Initially, 15% AGR was fixed as
licence fee under revenue sharing model. This was reduced to 13% and then to 8% in 2013.

The government and telecom operators differed on the difination of AGR. The Telecom operators
contended that AGR should include only core telecom services. But the Centre’s contentions was that
AGR should also include deposit interests, handset sales, rent and profit from scrap sale.

The telecom companies were opposed to this and had challenged this definition of AGR in several
forums, including the Supreme Court.

On October 24,2019, 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, the penalty on dues, and the
interest on penalty due to delay in payments. The top court had then given the telecos three months to
clear their AGR dues.

Airtel and Vodafone-Idea account for 54% of the total licence fee dues claimed by DOT

The Supreme Court on 14th February 2020 pulled up mobile service operators and the department of
telecommunications (DoT) for failing to comply with its earlier verdict, which mandated telecom
companies to pay the adjusted gross revenue(AGR) dues of over Rs 1 trillion to the DoT by 23 January.

In its judgment, the top court gave all telecos a 10-year timeline to complete the payments of AGR dues,
instead of the old 20-year schedule suggested by the DOT. The top court also directed telecom to pay
10% of the total AGR dues by March 31,2020, following which they can make payments in annual
instalments between 2021 and 2031. Telecom companies would also have to make payments on or
before February 7 every year. The non-payment of dues in any year would lead to accrual of interest and
invite contempt of court proceedings against such companies.
Following requests by DoT and the telecom companies that asking them to pay within such a short
period of time could have meant the end of the road for them. The Supreme Court agreed to hear them
on a revised timeline, but refused to reconsider the quantum of AGR to be paid by them.

For Bharti Airtel, which faced an AGR payment of Rs 36,000 crore, has already paid close to 40% or Rs
14,400 crore AGR dues until now. It still has to pay Rs 21,600 crore in total.

For Vodafone Idea, which faces a payment of more than Rs 58,000 crore, the situation is grim as it has
paid Rs 7850 crore AGR dues till date.

Tata Teleservices, which had in 2017 sold its consumer mobility business to Bharti Airtel, will have to pay
its AGR dues of Rs 14,819 crore.

The companies have violated the order passed by this court in pith and substance.

In spite of the dismissal of the review application, they have not deposited any amount so far. It appears
the way in which things are happening that they have scant respect to the directions issued by this
court.

What is AGR ?

Adjusted Gross Revenue(AGR) is the usage and licensing fee that telecom operators are charged by the
Department of Telecommunications (DoT).

It is divided into

1. Spectrum usage charges (SUC) – 3-5%

2. Licensing fees – 8%

How is AGR calculated ?

As per DoT, the charges are calculated based on all revenues earned by a telco –

1. Telecom Services revenue – call, data, messaging

2. Non- telecom related sources – deposit interest, asset sales, dividends, handset sales, rent,
profit from scrap sale, etc

As per Telecos, AGR should comprise only the revenues generated from telecom sevices.

14 year long court battle

2005, the Cellular Operators Association of India (COAI) challenged the government’s definition for AGR
calculation.

While telecom companies argued that it should comprise revenue from telecom services, the DoT’s
stand was that the AGR should include all revenue earned by an operator, including that from non- crore
telecom operations.

2015 – The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) said AGR included all receipts
except capital receipts and revenue from non crore sources such as rent, profit on the sale of fixed
assets, dividend, interest and miscellaneous income,etc.
The regulator has also included forex adjustment under AGR apart from ruling that licenses fee will not
be charged twice on the same income.

It, however, exempted bad debt, foreign exchange fluctuations, and sale of scrap to be calculated for
AGR.

Fallout Of The AGR Judgement The 2019 judgement dealt a crippling blow to the bruised industry that
stared at dues and penalties worth thousands of crores. It had increased the liabilities of Bharti Airtel and
Vodafone Idea to more than Rs 90,000 crore. Soon after, the companies approached the court, seeking
more time for payment of their dues. In September 2020, the apex court allowed for the payment of dues
over 10 years. In a separate plea in 2021, the top court dismissed the applications filed by telecom
companies that sought permission to approach the DoT on the calculation of the dues in the case,
claiming arithmetic errors in the department's calculation of the dues. In the aftermath of the AGR
judgement, the government owns a 33% stake in Vodafone Idea. The shares were allocated to the
government in lieu of the conversion of interest dues arising from the deferment of adjusted gross revenue
and spectrum auction payments.