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Saturday, September 26, 2020

Across the spectrum

Failure to fix contentious AGR issue in telecom sector has far reaching consequences

By: Editorial | Updated: August 21, 2020 9:23:57 am
EPFO subscribers may have to brace themselves for an even lower interest rate this year.

In the ongoing case regarding payment of adjusted gross revenues (AGR) dues by telecom operators, the Supreme Court has questioned how spectrum can be sold by telcos, given that it does not belong to them. While sale of spectrum is allowed under the trading guidelines, provided prior dues are settled, questions were raised over the recovery of dues under the IBC process which treats government claims below those of secured and unsecured creditors. According to the resolution plan for RCom approved by lenders, the Department of Telecommunications (DoT) will reportedly not get any proceedings following the resolution of the companies. Though these issues were raised with respect to the long-standing issue of AGR dues, how they are addressed will have far-reaching ramifications for other “natural public resource” dependent sectors.

There are several contentious issues here. First, while ownership of spectrum may not be a bone of contention, can the government revoke or cancel the licence? As per the IBC, in the moratorium period, a licence, permit, registration or clearance given by a government (central, state or local) shall not be suspended or terminated on grounds of insolvency, subject to the condition that there is no default in payment of dues for the use or continuation of the licence. Second, should the department of telecommunications be treated at par with creditors or is there a case for making an exception for a government department? Under Section 53 of the IBC, amounts due to government rank below those of secured and unsecured creditors. There are parallels between the issues raised in this case and the Federal Communications Commission v. Nextwave Personal Communications, Inc. in the US. In that case, following Nextwave’s filing for Chapter 11 bankruptcy, the FCC had asserted that its licences were automatically cancelled, and available for auction. However, the Bankruptcy Court invalidated the cancellation of the licences as violating the code’s provisions. NextWave’s position that the FCC’s cancellations were violations was subsequently upheld by the Court of Appeals for the DC Circuit, and the US Supreme Court.

At the crux of the issue is the failure of the government to fix the contentious AGR issue. Rather than intervene early on to address this issue, it has been driven by the desire of revenue maximisation, unmindful of the long-term implications on the sector. At a broader level, the implications of extending this argument to other sectors where government licences, permits etc are issued must be considered. This could, potentially, adversely impact those sectors’ prospects by impinging upon the ability of companies to raise capital with banks/investors turning wary of investing in them.

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