Adjusted Gross Revenue (AGR) and challenges of Telecom Sector

Why in news?
  • The Supreme Court reserved its judgment on the appeals by telecom companies seeking a chance to place their grievance against the 'arithmetical error' in the calculation of AGR dues by the Department of Telecom.
  • In September 2020, the Supreme Court ordered that the annual 10% instalments for payment of AGR dues would begin on April 1, 2021, through March 31, 2031.
Importance of Telecom Sector for India
  • India is currently the world’s second-largest telecommunications market with a subscriber base of 1.20 billion.
  • India ranks as the world’s second largest market in terms of total internet users.
  • The success of telecom sector in India played a key role in India's growth story.
  • With the roll out of 5G imminent, telecom sector will enable a massive change in the way we lead our lives.
What is Adjusted Gross Revenue (AGR):
  • Revenue Share: The Centre collects license fees and spectrum charges through 'revenue share' payments from telecom operators. Telecom companies pay 8% of their AGR as licence fees to the government.
  • Debate: The AGR is the revenue amount used to calculate this revenue share. The DoT and Telecom Companies have differed over the definition leading to litigation.
  • Government's stand: As per Department of Telecommunications (DoT), the calculations should include all revenues generated by a telecom company, such as deposits and sales of assets.
  • Telecom Companies stand: As per the telecom companies, AGR should consist only of revenues generated from telecom services and non-telecom revenues should be excluded. Thus incomes such as intrest earned, profits accrued on sales of assets or investments etc. should not be a part of it.
  • SC stand: It upheld the government's position and asked telcos to pay the due amount, interest on that amount, penalty and the interest on penalty.
Background:
  • Post Liberalization changes:
    • Fixed fee model: After Liberalization of the Telecommunication Sector in 1994, companies were granted licenses in return for a fixed fee.
    • Revenue sharing model: The government in 1999 offered the licensees an alternative to the fixed license fee by migrating to a revenue sharing model.
    • Under this agreement, mobile operators had to pay the government a share of their AGR as an annual license fee (LF) and spectrum usage fee (SUC).
  • The definition of AGR was the subject of litigation for a long time.
Challenges for telecom sector:
  • Lower Tariffs: Due to the low rates of calling and data usage over the time, the telecom industry has seen a reduction in profits.
  • Competition:
    • The sector has seen cut throat competition which ultimately led to the closure of several players.
    • The entry of Reliance Jio has further disrupted the market with free data and voice offerings.
  • :
    • The telecom industry in India is reeling under a debt of over Rs. 4 lakh crore.
    • Telcos has been seeking a relief package from the government.
  • Regulations Issue:
    • Other than the financial loss, companies have been facing a heavy burden through unsupportive regulation and excessive taxes.
    • Taxes and levies in India were already among the highest in the world.
  • Emergence of Duopoly
    • With closure or near closure of several companies, India's telecom market is likely to see a duopoly in near future. This will adversely affect the interest of the Indian consumer.
  • NPAs
    • The debt straddled sector has created panic for banks too who have accumulated NPAs of telecom companies.
  • OTT (over the top) applications such as WhatsApp, OLA, etc. do not require permission from a telecom company.
  • Internet based calling has to a great extent diminished the revenue from conventional
Way Ahead
  • Government Intervention: Government intervention in the form of either reduced penalty or extended payment period can help this sector.
  • Role of Telecom Players: The intense competition and fear of loss of costumer base has largely contributed to the distressed situation of telcos. The industry needs to work with collaborative competition rather than rivalry.
  • Rational tariffs and Policies: The financial health of the telecom sector can be improve by rationalising tariffs and through favorable and stable policy support.
Conclusion:
  • In India, the telecom sector has to deal with various challenges, such as maintaining sufficient spectrum and adopting new technologies rapidly so that customers can benefit from better and more technologically advanced services.
  • It is imperative for the government to play a proactive and facilitative role in the telecom sector in light of all the opportunities it offers.
 

Source: The Hindu and Indian Express

Posted by Jawwad Kazi on 10th Aug 2021
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