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Explained: Why SC hard line on AGR could lead to a windfall for govt, but bigger phone bills for you

The order by the Supreme Court means telecom companies, including Vodafone Idea and Bharti Airtel, will have to immediately clear the pending AGR dues, which amount to nearly Rs 1.47 lakh crore.

Written by Aashish Aryan , Edited by Explained Desk | New Delhi | Updated: February 14, 2020 9:37:02 pm
Explained: Why AGR order could spell doom for telecom companies, make Centre happy The Supreme Court initiated contempt proceedings against telecom companies for not paying the AGR dues.

The Supreme Court on Friday (February 14) came down heavily on the Department of Telecommunications (DoT) for issuing a notification last month that asked for no coercive action against telecom companies even though they had not paid the adjusted gross revenue (AGR) dues by the stipulated deadline of January 23.

A three-judge Bench headed by Justice Arun Mishra also initiated contempt proceedings against the telecom companies for not paying the AGR dues.

The court also asked DoT to immediately withdraw the notification which said that there would be no coercive action against telcos.

What does SC order on AGR mean?

The order by the top court means that the telecom companies will have to immediately clear the pending AGR dues, which amount to nearly Rs 1.47 lakh crore.

Vodafone Idea, which has to pay up nearly Rs 53,000 crore, faces the prospect of shutting down business. This has been said both by its global head, as well as the India head Kumar Mangalam Birla.

Bharti Airtel, which faces a payout of more than Rs 21,000 crore, could also be in trouble for not paying the AGR dues on time.

Other than the telcos, non-telecom companies could also be facing huge payouts individually, which amount to total of Rs 3 lakh crore.

What exactly did the government notification say?

The Licensing Finance Policy Wing of the DoT on January 23 directed all government departments to not take any action against telecom operators if they failed to clear AGR-related dues as per the Supreme Court’s order.

The order came as a huge relief for operators — mainly Bharti Airtel and Vodafone Idea — that would have otherwise faced possible contempt action for not paying dues by the deadline that ran out on that same day.

While there was no change in the amount they had to pay, it did buy them time as they hoped for relief from the Supreme Court, which was to then hear their plea seeking permission to negotiate the timeline for payment of dues with the DoT.

Bharti Airtel and Vodafone Idea together owe the telecom department Rs 88,624 crore. Prior to the DoT order restraining coercive action, the companies had told the government that they would wait for the outcome of the Supreme Court hearing. Reliance Jio paid up its dues of Rs 195 crore on January 23.

As things have turned out, however, the companies have got no relief from the Supreme Court.

What is the background of SC’s AGR order?

On October 24, 2019, the court had agreed with DoT’s definition of AGR, and said the companies must pay all dues along with interest and penalty.

Bharti Airtel and Vodafone Idea had tried to persuade DoT to relax the deadline and, after failing, moved the court seeking a review of its judgment. The court dismissed the review petition in mid-January, and also did not extend the deadline for paying AGR dues.

It had, however, agreed to hear the companies’ modification plea.

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Where does the government stand in this situation?

The payout by telecom and non-telecom companies is likely to lead to windfall gains for the central government, which could help it close some of the fiscal deficit gap for the current financial.

At the same time, however, the government will be under pressure to ensure that the telecom market does not turn into a duopoly if Vodafone Idea does indeed decide to shut shop.

It will also have to manage the payouts to be done by non-telecom companies as most of them, such as Oil India, Power Grid, Gail, and Delhi Metro Rail Corporation are public sector units.

Don’t miss from Explained: What does India’s removal from USTR list of developing countries mean?

What does this situation mean for customers and lenders?

If Vodafone Idea does exit, an Airtel-Jio duopoly will be created, which could lead to bigger bills, considering it was the cutthroat competition in the sector that made mobile telephony and Internet almost universally affordable.

The AGR issue has triggered panic in the banking industry, given that the telecom sector is highly leveraged. Vodafone Idea alone has a debt of Rs 2.2 lakh crore that it has used to expand infrastructure and fund spectrum payments over the years. The mutual fund industry has an exposure of around Rs 4,000 crore to Vodafone Idea.

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