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COAI seeks moratorium on AGR payments, floor price on tariffs

A telecom tower

The Cellular Operators Association of India (COAI) has sought a moratorium of 3 years for paying AGR dues, setting up of floor price for tariffs, and reducing license fee to “make the telecom sector sustainable”.  The association, which counts Bharti Airtel, Vodafone Idea and Reliance Jio among its members, wrote a letter to Telecom Secretary Anshu Prakash, seeking the government’s intervention to help the distressed telecom sector, two days before their meeting with the Digital Communications Commission (DCC) on February 28.

Demands made by COAI

Easing payment of AGR dues 

  • The government should set-off GST credits that it owes to the telecom companies in order to help them pay AGR dues. After the GST set-off, the payment of balance amount of interest, penalty, and interest on penalty should be allowed in a staggered manner.
  • A moratorium of 3 years should be provided towards paying outstanding AGR dues. Following the moratorium, the government should allow payment of AGR dues over 15 years, at a simple interest of 6%.
  • The amounts payable under the Supreme Court judgement on AGR dues, could be frozen to avoid recurring claim of interest, penalty and interest on penalty.
  • The government should offer loan equal to the AGR amount at 6% rate of interest.

Reduce license fees and Spectrum Usage Charge

  • The license fee should be “immediately” reduced to 3% from the current 8%.
  • The Spectrum Usage Charge (SUC) should be reduced by 3% for all telcos. Further, a nominal rate of SUC, between 0.5%-1% of AGR, should be prescribed for forthcoming auctions for recovering the administrative cost.

A floor price on tariffs should be effective immediately, since floor price is imperative to ensure that the sector is sustainable, and in a position to bear the deferred spectrum and AGR dues, while continuing to invest further. COAI recommended setting up a floor price from April 1, 2020.

  • Floor pricing will help in improving average revenue per user (ARPU), which is much lower compared to markets like China, Brazil and Russia.

The government has to give “a clear message to banks”, that it would support the sector. Banks are currently unwilling to take any risk w.r.t. telecom sector and are constantly asking TSPs to reduce their exposures by refusing to issue/renew Bank Guarantees. This needs to change.

  • The requirement of financial bank guarantees (FBGs) for securing license fee payments should be done away with. However, in case the Department of Telecom (DoT) thinks that FBGs are still required, then it should be reduced to one quarter’s license fee

The aftermath of SC’s AGR verdict

This development comes after the Supreme Court, in October 2019, 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 Central government, which includes disputed demand, interest, and penalty.

  • The Supreme Court has already dismissed a review petition filed by telecom companies challenging the October 2019 order, and hearing on a subsequent plea filed by them is currently underway, with the next date of hearing being March 17 (more on that below).

Airtel, Vodafone pay part of AGR dues: As per regulatory filings, Bharti Airtel, on February 29, paid the DoT Rs 3,004 crore towards AGR dues, after it had paid Rs 10,000 crore towards the same on February 17. It has also deposited an additional amount of Rs. 5,000 crore, to settle any differences. Meanwhile, Vodafone Idea had paid the DoT Rs 2,500 crore on February 17, and another Rs 1,000 crore on February 20, according to The Hindu.

Supreme Court directed telcos to pay AGR dues by March 17: Both Airtel and Vodafone rushed to pay part of their AGR dues after the Supreme Court on February 14 rejected their plea seeking more time to settle AGR dues, and ordered telcos to pay their outstanding dues by March 17. In case telecom companies fail to pay AGR dues by then, the Managing Directors/ Directors of the companies will have to personally appear before the Court on the next day of hearing (March 17). It also asked MDs/Directors of the companies “to show cause why we [SC] should not initiate contempt proceedings against them”.

“This case projects a very disturbing scenario. 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.” — Supreme Court on February 14

The court also issued a contempt notice against a desk officer at the DoT, who had allegedly issued a direction “not to insist for any payment pursuant to the order passed by this Court and not to take any coercive steps till further orders”.

Download COAI’s letter to the Telecom Secretary here.

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