NEW DELHI: India’s top court verdict on Thursday afternoon has virtually led havoc across the telecom sector which is asked to pay Rs 92,000 crore ($13 billion) to the government on account of the adjusted gross revenue (AGR) whose interpretation led to a decade and a half long legal dispute.
The development is poised to imperil the forthcoming spectrum sale and network expansion. Stressed industry, sitting on Rs 8 lakh crore worth of cumulative debt, is set to further bleed with their gear suppliers such as Ericsson, Huawei and Nokia are too are likely to face the brunt.
Here is what the incumbent telecom carriers, industry body, and analysts say.
Sunil Mittal-driven Bharti Airtel’s spokesperson-
We are disappointed by the verdict of the Hon’ble Supreme Court. The definition of AGR has been a long-standing dispute between the DoT and the Telecom Service Providers (TSPs) dating to 2005. The issue of inclusion of revenue from non-telecom activities and interpretation of the heads included in the definition of AGR under the license conditions has been through several rounds of litigation, which have been in favour of the TSPs till now.
The TSPs have invested billions of dollars in developing the telecom 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 sector operators remain in service today. The Government must review the impact of this decision and find suitable ways to mitigate the financial burden on the already stressed industry.
We will be able to comment further only after reviewing the order in detail.
Kumar Mangalam Birla-headed Vodafone Idea Limited’s (VIL) statement –
“Vodafone Idea is extremely disappointed by the Hon’ble Supreme Court judgment on the Adjusted Gross Revenue (AGR) case. The matter is 14 years old and pertains to the issue of whether revenue from other non-telecom related activities should be included in the AGR definition under the telecom licence conditions. The matter has already been through several rounds of litigation, which have been largely in favour of the operators until now.
We will study the ruling as soon as it is available, along with our legal advisers, to determine the next steps. If there are technical or procedural grounds for doing so, this could include a Review Application.
Clearly this judgment has significantly damaging implications for India’s telecom industry, which is already reeling under huge financial stress and is left with only four operators. Significant investment of several billion dollars has been made in creating world-class networks. Today’s order has huge impact on two private operators while most of the other impacted operators have exited the sector. We urgently request that the government engage on this matter in order to find ways to mitigate the financial stress for the industry.”
Rajan S Mathews, Director General, Cellular Operators Association of India (COAI) –
“The telecom sector expresses its deep disappointment on the Hon’ble Supreme Court’s judgment on the definition of Adjusted Gross Revenue (AGR) which will have an impact of over Rs 92,000 crore on the industry. With over 1.19 billion subscribers, the telecom sector is a key contributor to the Indian economy in terms of consumer benefit, employment, revenue generation and contributes 6.5% to the GDP.
The sector has the lowest tariffs in the world backed by the investment of over INR 10 lakh crores in setting up world-class mobile networks over the last 20 years but is going through one of its most disruptive phases. The sector is already reeling under a daunting debt of approx. Rs 4 lakh crores and is in dire financial straits as operators are making negative returns on their investments. The telecom EBITDA continues to contract, while the interest expense of the Industry continues to increase.
The taxes and levies in the Indian telecom sector, ranging from 29% to 32%, are one of the highest globally. The Supreme Court’s judgment is the last straw in contributing to financial distress and it remains to be seen whether the industry will be able to recover from this setback. The immense financial pressure on the sector will also adversely impact Digital India roll out.
Ankit Jain, Assistant Vice President, ICRA Limited –
“The Supreme court order, which mandates the telecom operators to include non-core revenues for the calculation of adjusted gross revenue (AGR) exerts additional burden on the industry, which is already saddled with elevated debt levels and tepid cash-flow generation. Any upward revision in AGR calculation will result in a higher outgo of levies like license fee and spectrum usage charges. With this ruling, the telcos are not only required to pay these levies over the last 14 years but are also required to pay interest on such charges, along with penalty on missed payments and interest on such penalty.
The quantum of these charges and the timelines of payment are uncertain as of yet and clarity on these will emerge only once the detailed order is received. This order comes at a time when the operating metrics of the telcos were showing some signs of improvement which along with the recent attempts to inorganically deleverage the balance sheets was expected to assuage the debt metrics to some extent. However, these charges will weaken the debt metrics of the industry and protract the recovery in the sector.