With the Supreme Court indicating it may take up telcos' petitions for hearing in March, there's a new ray of hope for India's largest telecom firms - Airtel and Vodafone Idea - before they are forced to pay their share of 10 per cent of the Rs 1,02,234 crore AGR payout. The apex court had ordered the telcos to pay this amount by March 31.
Last month, Bharti Airtel, Vodafone Idea and Tata Teleservices filed individual applications before the Supreme Court (SC) seeking clarification, modification or recall of its judgment requiring them to pay by March 31 on the ground that the amount of Adjusted Gross Revenues (AGR) dues suffer from clerical or arithmetic errors.
Senior advocate Tarun Gulati says that the SC had decided the principles on which AGR would be calculated, but did not delve into the exact quantum of demands which were payable.
"A chart was offered by the DoT [Department of Telecommunications] to the court with certain amounts stated to be payable. It was not pointed out to the court that the process of reconciliation was pending before the DoT at that time. The telcos are seeking to get the correct number ascertained which is a fair demand. It's an exercise to determine correct facts which must be allowed as that verification has not been carried out by the court," says Gulati.
Telcos say that even though the previous bench didn't allow them to raise any dispute against the Rs 1.69 lakh crore demand raised by DoT, these glaring errors can be easily checked by DoT and verified through a simple process. Broadly, the telcos argue that the mistakes are on three counts: payments made by the telcos but not accounted by DoT, double counting of some revenue items in the AGR demand, and permissible deductions not given by DoT on Interconnection Usage Charges (IUC) and roaming charges.
For instance, every telco is required to pay IUC charges to other telcos if their customers make calls on the networks of other operators. These payments are typically deduced from the gross revenues of the paying telco - while arriving at AGR - because the recipient telco is supposed to include them in their revenues for the AGR computation. But telcos allege this didn't happen.
Then, same amounts have been considered twice under two different heads. For instance, an amount of Rs 404.98 crore was included under the dividend income for Vodafone Idea's Mumbai circle in FY 2012/13. The same amount has been included again under the "promotional talk time" head, as per Vodafone Idea's petition copy accessed by Business Today.
In its petition, accessed by Business Today, Airtel has asked the court to permit DoT to finalise the assessments after taking into account the representations made by telcos, and thereby determine the total amount due to the telcos.
In some instances, DoT has failed to include payments made by telcos in the form of demand draft or bank remittance (towards license fee) while calculating the preliminary-assessed AGR demands. This is despite telcos submitting such proofs with the department.
It may be noted that the Supreme Court, in its landmark October 2019 judgement, had defined AGR to include both telecom and non-telecom revenues of the operators as part of AGR calculations. Subsequently, the September 2020 judgement had categorically said that there shall not be any dispute raised by any telco, and there shall not be any re-assessment allowed to the telcos.
In their appeals, telcos argue that they are not seeking reassessment nor raising any dispute regarding AGR. Also, the applications don't raise any question of law or the interpretation of the definition of AGR.
Experts believe that modification is likely only if DoT is ready to relook at its preliminary calculations. "DoT was in favour of giving relief to telcos in the form of annual instalments but it has remained silent on the re-assessment issue so far," says a telecom analyst. Multiple attempts to reach out to DoT did not elicit any response. An email and questionnaire sent to DoT secretary Anshu Prakash remained unanswered.
If the AGR liability was lowered to self-assessed value, the three telcos would get substantial relief (about Rs 72,000 crore). Goldman Sachs expects Airtel's and Vodafone Idea's net debt to drop by 30 per cent and 20 per cent, respectively, if AGR is reduced from the original demand to telcos' self-assessed amounts. Nevertheless, analysts at the brokerage don't expect major respite.
"While incrementally positive for Bharti Airtel and Vodafone Idea from a cash flow and net debt standpoint, we believe AGR dues at the lower self-assessed levels would have little to no impact on the industry's competitive landscape," says the Goldman Sachs report.
The 18-year-old AGR issue continues to drag on despite two orders by the apex court on the matter in less than two years. DoT believed that AGR computation should include non-telecom revenues of telcos such as interest income, dividend, profits on the sale of assets, insurance claim and forex gains. Telcos disputed it till about October 2019 before they lost the case to DoT, and were asked to pay Rs 1.69 lakh crore to the government. Later, telcos filed review petitions which were rejected by the Supreme Court. On September 1, a SC bench gave relief to the telcos by asking them to clear their AGR dues in 10 annual instalments starting FY22, with 10 per cent upfront payment due in March.
Airtel has already paid Rs 18,004 crore (out of Rs 43,980 crore demanded) while Vodafone Idea has paid Rs 7,854 crore (out of Rs 58,254 crore). Airtel has self-assessed its dues at Rs 18,004 crore, just 41 per cent of DoT estimates whereas Vodafone Idea self-assessed its dues at Rs 25,000 crore, about 43 per cent of DoT's demand.
Utkarsh Sinha, managing director, Bexley advisors, a boutique investment bank firm, says that the resolution of AGR matter in favour of telcos is a dire necessity for India Inc. "The sad effect of AGR issue, and the fine on companies like Cairn has sent a signal to FII [foreign institutional investors] and FDI [foreign direct investment] investors that the regulatory framework in India is fluid and risky. Often, companies investing in India ask for sweeping indemnity clauses for protection against such moves which places an undue burden on Indian businesses. If we signal to the world that their investments are safe here, we will see phenomenal movements of capital inflows," he says. The story will be updated if DoT responds.