All you need to know about Telecom companies’ AGR dues

Mid- February the newspapers have been flooded with the news of telecom companies having to pay their AGR dues and the same causing a lot of problems for them. Are you among the people who are super confused because of this and want to understand how and why exactly is paying these dues so important? Then read along to get a complete picture surrounding the telecom companies AGR dues condition and how it will affect the giants namely – Bharti Airtel, Vodafone Idea and Reliance Jio.

AGR dues or Adjusted Gross Revenue is a charge which is supposed to be paid to the government by all the telecom companies towards the license fee as well as use of spectrum fee. The AGR dues that are pending with the telecom companies is valued at a whopping 1.47 lakh crore INR, and almost all the telecom companies are in the list, including the government subsidiaries BSNL and MTNL.

What exactly is the AGR?

The liberalization of the telecom sector happened in 1994, where the license was issued to the companies at a fixed charge. This model was changed to revenue sharing model in 1999, to benefit the companies from the steep license fee. Under this model, the telecom companies were expected to share a fixed percentage of their gross revenue with the government as spectrum usage charge and license fee.  The license fee was set at 8 percent and spectrum usage charge at 3-5 per cent of the Gross Revenue respectively.

The dispute between the DoT and telecom companies started on the definition of the AGR. As per DoT the AGR is inclusive of all the revenues including revenue from telecom as well as non-telecom services, while the telecom companies claimed that only the revenue from telecom services should be included.

What the Supreme Court verdict said

The Association of cellular operators of India challenged the government’s definition of AGR in 2005. The Supreme Court of India announced on 24th October 2019, that the definition of AGR includes all revenues as announced by the DoT.

The Supreme Court issued a notice with a deadline of 23rd January for clearing and settling all AGR dues, but except Reliance Jio, no other telecom company paid any due to the government. The fifth and final notice for clearing the dues was issued to the remaining telecom companies on 14th February to clear the dues immediately.

The companies were expected to clear the AGR dues by 17th February. Vodafone Idea limited proposed the Supreme court to pay 2500 crore on 17th February, and 1000 crore within the next 4 days. The same was rejected by the supreme court. Bharti Airtel paid an amount of 10,000 crores as a part of the AGR dues they owe to the government.

Conclusion

It is expected that several companies can file for bankruptcy considering the huge amounts they owe to the government. Among them is Vodafone Idea as well which has been posting losses in its quarterly results and declarations for many quarters now. Reliance communications and Aircel has already wrapped up their businesses and are in the process of solvency to pay the dues.

The telecom companies have raised the prices of services in the last 2-3 months considering the huge number of dues they owe. The costs are expected to rise further. Probably it is the time to wave goodbye to free data and voice calls.

There is expected a huge blow in the telecom sector stocks following the decision of Supreme Court and the payment of dues. If you hold any stocks from the telecom sector there is a risk associated with your investment. The earning per share will be drastically reduced including very poor or no dividends. The supreme court has also denied for all reliefs to the telecom companies related to waiving off the dues or extending the deadline further

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