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Friday, December 03, 2021

A welcome waiver

Supreme Court order on AGR issue brings relief to non-telcos. But for telcos, uncertainty continues

By: Editorial |
Updated: June 13, 2020 10:30:23 am
Supreme court telecom sector, Telecom sector AGR dues, PSU AGR dues telecom sector, express editorial Terming the move as a misuse of its order, the Court said that its earlier order pertained only to telecom operators and not non-telecom PSUs.

In a major relief for non-telecom public sector enterprises, the Supreme Court, on Thursday, came down heavily on the Department of Telecommunications for issuing them demand notices for payment of dues related to the adjusted gross revenue (AGR) issue. Terming the move as a misuse of its order, the Court said that its earlier order pertained only to telecom operators and not non-telecom PSUs. The latest Court order is welcome. While the inclusion of revenues from non-telecom operations in the definition of AGR was problematic to begin with, the DoT’s decision to ask PSUs such as GAIL, Oil India and Power Grid to cough up fees pertaining to their non-telecom revenues, following the Supreme Court order, was deeply flawed.

However, there continues to be uncertainty on the issue of payment of AGR dues by telecom operators such as Bharti and Vodafone. While the Court has taken cognisance of the telcos’ plea of allowing them to repay their dues over a period, it remains sceptical of the 20-year time horizon, directing them to file a reply on the timelines of the payment of the dues, and the securities they can provide as guarantees. Telecom operators, though, will take some comfort from the fact that the Supreme Court showed flexibility in the matter and did not direct them to settle their dues immediately. However, given the quantum of the dues, it is conceivable that telcos may not be in a position to furnish the requisite bank guarantees as asked by the court.

While the court had previously sided with the government on the issue of what constitutes AGR — telcos were of the opinion that only revenue from telecom services should be included in the assessment of AGR and not revenues from non-telecom activities like interest income and rent — the government’s continued reluctance to reconsider its approach has been short-sighted, to say the least. Given the ambiguity over the definition, at the very least it could have withdrawn its demand on collecting penalties, and interest on penalties. Considering the financial positions of incumbents, there are genuine concerns over the ripple effects of even one telco going under on not only the market structure and the end consumer, but also the financial sector and the broader economy. How the government resolves this issue remains to be seen. But, so far, its handling of the situation leaves much to be desired. Timely intervention could have helped alleviate the pain. At this critical juncture, rather than be driven by short-term revenue considerations, the government should consider the long-term implications of its moves on the telecom sector. The lingering uncertainty is in no one’s interest.

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