Government Has To Help Telcos Survive SC Blow On Past AGR Dues; Or It Can Kiss 5G Goodbye

The Supreme Court’s recent judgement upholding the validity of the Department of Telecom’s (DoT’s) definition of "adjusted gross revenue" is unimplementable. Not just because the total dues may be in excess of Rs 1.4 lakh crore, including all charges and penalties, but because neither government nor the industry can live with the consequences.

If the industry is forced to pay up, at least one more operator could go under – possibly Vodafone Idea. So, one can rule that out. Vodafone Idea is understood to owe a third of the total dues.

If the government demands the money, the industry will not only fall deeper into debt – which will send shivers down the spines of public sector banks – but it will also be effectively kissing goodbye to the 5G spectrum auctions slated for later in this fiscal year. Old dues will kill future revenues in the medium term.

Lastly, most of the companies that were required to pay this amount are now defunct: there are only three left in the ring, Reliance Jio, Airtel and Vodafone Idea. The rest – nearly a dozen of them – have either wound up, or have ended up in the insolvency courts, including Reliance Communications and Aircel. Short of demanding that the dead pay up their dues, there is no way this amount of money is at all recoverable.

On the other hand, if it is levied only on the living, they will soon become zombies.

On the face of it, the Supreme Court’s verdict essentially says the obvious: that adjusted gross revenues (AGR), on which licence fees and spectrum usage charges are calculated, mean what they are intended to mean. They should include all revenues, even if the revenues do not directly pertain to core telecom operations.

The real problem is not the definition of AGR, but the sheer amount of time taken to arrive at a definite verdict on the dispute, which dates back to 16 years. A resolution got kicked down the road until it finally ended up in the Supreme Court this year.

In the process, a dispute over a relatively smaller amount – Rs 23,189 crore – snowballed into dues of Rs 92,641 crore, thanks to penalties on unpaid dues, interest on the dues, and interest on the penalties themselves. Add the dues on spectrum usage charges (SUC) of over Rs 46,000 crore (including penalties and interest), and the total bloats to an unmanageable Rs 1.4 lakh-crore-plus burden on an industry staggering under Rs 4 lakh crore of debts. Some of the debt may be unrecoverable even from bankruptcy courts.

One wonders why DoT did not foresee this eventuality when it decided to drag the telecom operators to court. It should really have worked on a compromise. However, in a climate where any sensible decision is seen as a sellout to corporate interests, the department’s bureaucrats probably saw this as the safe way out.

The top court, in its narrow interpretation of the law, has been a major cause of business uncertainties, as it has taken extreme measures like cancelling licences in the coal and 2G spectrum scams. Not for nothing did senior counsel Harish Salve suggest a few weeks ago that the courts are partially responsible for the current economic slowdown.

The ball is clearly in the Narendra Modi government’s court now, and it should not fight shy of doing the right thing. Even at the cost of being seen as friendly to business, it has to ensure that it survives this costly verdict.

It has to do one, or all three, of these things.

First, it can waive all penalties and interest on overdues as a one-time settlement offer. This will make the problem at least manageable.

Second, it must offer a longer time-frame for the payment – maybe stretched over several years. Leaving this to the Supreme Court to decide is folly, when the court has shown no ability to understand commercial issues.

Third, it must prospectively drop licence fee and spectrum usage charges based on AGR. AGR itself can be modified to reflect core telecom revenues, instead of relying on vague definitions that allowed the industry to challenge DoT’s definition, and the courts to interpret it to the industry’s ultimate disadvantage.

An alternative is to merge the first, second and third options, so that all past dues are recovered in future at close to the same current overall rate of licence and SUC fees. That is, the actual licence fees can be drastically cut for future payments, but the annual amounts payable remain more or less the same in order to amortise past dues. This way the industry will not be overburdened, and the payments can be viably financed.

If decisions to help the industry are not forthcoming, we can forget about 5G spectrum auctions this year or even the next.