AGR or spectrum? What's a bigger drag on telecom operators' finances?

Trai says a reduction in AGR will allow more investment in telecom sector, but DoT argues the same can be ensured if Trai agrees to reduce spectrum reserve price at auctions

The Supreme Court has decided that non-core revenues will also be included while computing the levies Indian telecom service providers (TSPs) pay the government. The decision supposedly ends a dispute running since 2005 between TSPs and the department of telecommunications (DoT). At stake is a possible bill of Rs 90,000 crore on the sector, so it is quite certain that the order will be contested again.

Within hours of the SC decision, Bharti Airtel has already put out a statement expressing disappointment. "The government must review the impact of this decision and find suitable ways to mitigate the financial burden on the already stressed industry," it said: The financial impact on rival Vodafone is expected to be more. According to a Business Standard estimate, the total impact on them could be Rs 50,000 crore.

The issue of inclusion of revenues from non-telecom activities and interpretation of the heads in the definition of adjusted gross revenue (AGR) under the licence conditions has been through several rounds of litigation, not only in the Supreme Court but also in several high courts, including a case heard in the Tripura High Court. DoT has always held that the AGR definition should not be disturbed. TSPs with a licence need to pay 8 per cent of their total revenue to the government and that includes all the lines of business they may be involved in. This is in addition to the bill they pay to buy spectrum, their usage and others.

TSPs not only contend that non-telecom revenues they earn should remain out of the purview of AGR calculations but also argue that they have no ability to partner with any content player to earn additional revenue according to the current rules. A company offering the same bouquet of services but as a non-licensee could freely replicate the same services. This means the latter can offer its consumers both voice and data services at a far less cost. The former regime, companies say, militates against fair play.

DoT has long held that the simplicity of the AGR regime is its strong pitch, which the court today has also agreed to. How much should the government earn has been the bane for several sectors like petroleum, broadcasting, and so on. Also, DoT has argued that the current stress in the sector has little to do with AGR and more about the high reserve price set for spectrum. The government has so far collected over Rs 3.6 trillion from successive rounds of spectrum auction. This has been close to 25 per cent of its total non-tax revenue in the past eight years.

The Telecom Regulatory Authority of India (Trai) has sometimes sided with TSPs, arguing that a reduction in AGR would be necessary to allow more investment in the sector. But DoT has said the same could be ensured if Trai agreed to reduce the reserve price of airwaves at auctions. While both point fingers at each other, the high levies on TSPs ensure they invest less which adversely impacts the government’s plans for larger digital footprint in the economy.