Supreme Court Rules Against Telecom Operators In Rs 92,000-Crore AGR Dispute

The Supreme Court ruled that India's telecom operators will have to include non-core revenue to calculate levies, dealing a crippling blow to the bruised industry that stares at dues and penalties worth thousands of crore.

The government's definition of adjusted gross revenue (AGR) will include most operations of operators barring a few, the Supreme Court ruled. The carriers will have to pay penalty and interest, it said.

The verdict ends the 14-year-old legal battle between mobile operators and the government on the definition of adjusted gross revenue—used to calculate spectrum charges and licence fees. The Department of Telecommunications had sought more than Rs 92,000 crore in dues. The exact amount, however, may change based on what's finally included in the definition.

Shares of Bharti Airtel Ltd. fell as much as 4.9 percent and Vodafone Idea Ltd. tumbled as much as 13.3 percent after the verdict. According to numbers filed with the court, Bharti Airtel will have to pay up Rs 21,682 crore and Vodafone Idea will have to pay Rs 28,309 crore. That comes when their debt has ballooned and profits fallen after Mukesh Ambani's Reliance Jio Infocomm Ltd. upended the nation's telecom market with rock-bottom tariffs, wiping out smaller rivals and forcing others to merge.

Bharti Airtel, in a statement, said it's disappointed by the verdict. “The TSPs (telecom services providers) have invested billions of dollars in developing the sector and providing world-class services to consumers. This decision has come at a time when the sector is facing severe financial stress and may further weaken the viability of the sector as a whole.”

Of the 15 old operators impacted by the order, only two private remain operational, Bharti Airtel said, adding that the government must review the impact of this decision and find suitable ways to mitigate the financial burden on the stressed industry.

Vodafone Idea in a similar statement said it will study the ruling along with its legal advisers to determine the next steps. “If there are technical or procedural grounds for doing so, this could include a review application.”

Vodafone and Idea Cellular have merged, while Reliance Communications, Aircel, Telenor India, Videocon Communications, SSTL and Loop Telecom have shut shop. Tata Group, too, has exited its mobile services business.

Telecom operators are liable to pay around 4 percent and 8 percent of their adjusted gross revenue as spectrum usage charges and licence fees, respectively, to the telecom department. The operators were arguing that the metric should comprise revenue from telecom services, but the government insisted that it should include all revenues earned by an operator, including that from non-core telecom operations.

ICICI Securities in an earlier note said companies haven't created any provisions against these liabilities, adding such payments, if any, will further strain their already stretched balance sheets.

This outcome in favour of the government will also strengthen its case for a one-time spectrum charge. Although spectrum charges weren't part of the case in the Supreme Court, a favourable order on the definition of adjusted gross revenue will strengthen the government's bid to recover these dues.

Until 2008, telecom companies were allocated 4.4 megahertz of spectrum on payment of entry licence fees on administrative basis. However, in FY13, the telecom department issued demand notice for administratively allocated spectrum beyond 6.2 MHz retrospectively from July 1, 2008, till Dec. 31, 2012, in each circle; and on administratively allocated spectrum beyond 4.4 MHz from Jan. 1, 2013, prospectively till the expiry of the licence.

The Telecom Disputes Settlement and Appellate Tribunal had on July 4 ruled that the telecom department can only charge for administratively allocated spectrum to operators beyond 6.2 MHz and not 4.4 MHz. It also said levy cannot be charged on retrospective basis—from July 1, 2008—but can be charged prospective, or from Jan. 1, 2013. However, on Aug. 19, a separate judgment by the Supreme Court stayed the appellate tribunal order that had stalled the telecom department from demanding one-time spectrum charge from Reliance Communications Ltd. But it had to provide bank guarantees towards the same.