Why SC ruling on AGR is crucial for India's telecom sector

For the PMO this is urgent as the Digital India framework would depend on how the telecom companies perform. It is also linked to the proposed auction of 5G airwaves.

While AGR is administered by DoT, spectrum and tariffs are set by Trai and each blames the other for the impasse the sector finds itself in. Photograph: Himanshu Sharma/Reuters

To get the telecom sector a stable financial base, the government is waiting for a favourable verdict from the Supreme Court on the longest dispute in the sector, instead of tweaking interconnect charges or setting tariff rules, according to a top bureaucrat.

As Telecom Minister Manoj Sinha is set to meet telecom company chiefs this week, the officials in the know said none of the options on the table, including changes in interconnect charges and tweaking of the tariff regime, would work without settling the adjusted gross revenue (AGR) controversy.

They are optimistic it can happen as the Telecom Regulatory Authority of India (Trai) and the Department of Telecommunications (DoT) are now working together to resolve this knot.

While AGR is administered by DoT, spectrum and tariffs are set by Trai and each blames the other for the impasse the sector finds itself in.

Settling AGR is also convenient while setting tariff rules that Trai has proposed or demanding a softer reserve price for airwaves are politically difficult calls.

Trai incidentally has made a presentation to the government on changing the tariff rules for the sector.

It has also helped that the Prime Minister’s Office has asked the two to ensure a viable and long term solution to the sector’s financial distress is hammered out.

For the PMO this is urgent as the Digital India framework would depend on how the telecom companies perform. It is also linked to the proposed auction of 5G airwaves.

The DoT is now headed by Aruna Sundararajan, who is holding it as an additional charge.

Interestingly, the inter-secretary panel, the telecom commission which takes the final call on most policy issues includes, Tapan Ray, who has joined as secretary in the department of economic affairs, recently.

The one holding the longest tenure at the policy making levels now is Trai chairman R S Sharma.

The AGR problem has a long history. It is about what constitutes gross revenue for a telecom company.

In 11 years it has travelled through all courts in the country, including the Supreme Court, several high courts -- the latest one being distant Tripura -- to the telecom appellate body, the Telecom Disputes Settlement and Appellate Tribunal.

It is again pending in the Supreme Court, and expected to come up after the vacations.

Telecom companies with a licence need to pay about 8 per cent of their total revenue to the government and that includes all the lines of business they may be involved in.

It is in addition to the price they pay to buy spectrum, their usage and others but they have no ability to partner with any content player to earn additional revenue.

A company offering the same bouquet of services but as a non-licensee freely replicates the same services.

This means the latter can offer his consumers both voice and data services at a far less cost. The former regime, companies say, militates against fair play.

DoT has long held that the simplicity of the AGR regime has ensured no disputes about revenue payable from the sector, something which has been the bane for several sectors.

Also, it has argued that the current stress in the sector has little to do with AGR per se and more with the high reserve price set for spectrum.

The government has so far collected over Rs 3.6 lakh crore from the successive rounds of auctions which has been close to 25 per cent of its total non-tax revenue in the past seven years, a report by rating agency Icra notes.

To make life easier for the telecom companies, DoT has suggested Trai could consider a softer reserve price in the ensuing auctions.

Sharma has suggested that AGR rules should be eased to carve out non-telecom revenues from the calculation.

The regulator in a consultation paper said receipts from USO Fund, meant to finance expansion of rural telephony, capital gains from sale of fixed assets and securities, bad debts and dividend and interest income, should also be out of the revenue base. It had argued these will still not make the calculation of AGR difficult, something that DoT has repeatedly argued against.

Telecom sector analyst Mahesh Uppal says linkage of the fees payable by the telecom companies with realistic calculation of yearly revenues will reduce dependence on high reserve prices.

“This will help design better spectrum auctions,” he adds.