After the Supreme Court dismissed review petitions filed by telcos including Vodafone Idea and Bharti Airtel, which sought relief from the apex court’s earlier judgement on the payment of adjusted gross revenue (AGR), Bharti Airtel told MediaNama that the money now required to pay “punitive interest, penalty and interest on penalty which forms nearly 75% of AGR dues would have better served the digital mission of the country”. The telco also told us that it is currently evaluating filing a curative petition against the apex court’s decision. It added:

“While respecting the Hon’ble Supreme Court’s decision, we would like to express our disappointment as we believe the long standing disputes raised regarding the AGR definition were bonafide and genuine. The industry continues to face severe financial stress and the outcome could further erode the viability of the sector as a whole. The industry needs to continue to invest in expanding networks, acquiring spectrum and introducing New Technologies like 5G.” — Bharti Airtel to MediaNama (emphasis ours)

Airtel and Vodafone Idea had filed separate review petitions in December 2019. We have also reached out to Vodafone Idea for comment and will update this when they respond. A division bench of Justices Arun Mishra, S Abdul Nazeer, and MR Shah, did not find any merit in entertaining the review petitions, and held that “having perused the Review Petitions and the connected papers with meticulous care, we do not find any justifiable reason to entertain the review petitions. The Review Petitions are, accordingly, dismissed”.

SC’s AGR verdict: On October 24, 2019, the Supreme Court had ordered telecom companies to include non-core income for calculation of Adjusted Gross Revenue (AGR), and asked them to pay Rs 92,640 crore to the Centre, which includes disputed demand, interest, and penalty. Following the judgement, the Cellular Operators Association of India (COAI) had written to the Department of Telecommunications, seeking its intervention, and argued that such payments would lead to a crisis at the companies and would cause distress to the sector as a whole.

The AGR verdict resulted in massive losses for Vodafone and Airtel in Q2FY20: While announcing a massive loss of Rs 50,897 crore in Q2FY20 — the biggest quarterly loss in India’s corporate history — Vodafone Idea had said that reducing the rate of calculating the AGR interest would be a “significant” help. In fact, Vodafone Idea’s earnings for the quarter were so discouraging, that its parent company, the UK-based Vodafone Group had said that it would not inject further group equity in the company.

  • Also, Vodafone Group’s Nick Read had reportedly said that the condition of Vodafone Idea is critical and if the sector doesn’t get certain remedies, the company might potentially be looking at liquidation. He, however, apologised to the Indian government, stating that this remarks were reported in a “distorted” manner, and that the company very much wanted to operate in India.

Similarly, Bharti Airtel had posted a huge loss of Rs 23,045 crore in the same quarter, and had said that the apex court’s AGR verdict had “significant financial implications on the company”. Without the SC verdict, Airtel’s loss for Q2FY20 would have been Rs 1,123 crore.

  • It is, however, worth mentioning that earlier this year, shareholders of Bharti Airtel gave it the green light to raise up to Rs 21,000 crore, which will help the company in paying outstanding dues.

India’s dwindling telecom sector

The Department of Telecom, in a notification, in October 2019, made note of the following points regarding the financial performance of telecom service providers:

  • The aggregate gross revenue of the industry for the period between 2017-2018 and 2018-2019 has decreased.
  • The price of data for the customer at an average of Rs 8 per GB is the lowest in the world.
  • The average revenue per user (ARPU) per month has declined from Rs 174 in 2014-2015 to Rs 113 in 2018-2019.

DoT has also formed a Committee of Secretaries (CoS) headed by the Cabinet Secretary Rajiv Gauba, to examine challenges faced by the telecom sector and suggest measures to mitigate the financial stress in the sector.

In August 2019, Communications Minister Minister RS Prasad had urged Finance Minister, Nirmala Sitharaman, to reduce the GST on telecom equipment, “first to 12% and then lower, from the current 18%”.

  • Prasad noted that the adjusted gross revenue (AGR) of the telecom sector had shrunk by 25% to Rs 1.39 lakh crore in FY19 from Rs 1.85 lakh crore in FY17, and these measures were essential for the viability of the sector.
  • He also wrote that the Rs 36,000 crore that has accumulated as input tax credit due to the telecom companies be adjusted against future GST levies.