Adjusted Gross Revenue (AGR)

Q. Why is this in news ?

A. The Supreme Court allowed telecom companies 10 years’ time to pay their adjusted gross revenue (AGR) dues to the government while the government had proposed in court a 20 ­year “formula” for tele-companies to make staggered payments of the dues.

Q. What is AGR issue?

▪ The telecom sector was liberalised under the National Telecom Policy, 1994 after which licenses were issued to companies in return for a fixed license fee.

▪ To provide relief from the steep fixed license fee, the government in 1999 gave an option to the licensees to migrate to the revenue sharing fee model.

◦Under this, mobile telephone operators were required to share a percentage of their AGR with the government as annual license fee (LF) and spectrum usage charges (SUC).

◦License agreements between the Department of Telecommunications (DoT) and the telecom companies define the gross revenues of the latter.

Q. What is the discord in issue?

The basic issue is in definition of AGR i.e. AGR calculation 

• The definition of AGR has been under litigation for 14 years. In 2005, Cellular Operators Association of India (COAI) challenged the government’s definition for AGR calculation..
• DoT argued that AGR includes all revenues from both telecom and non-telecom services.
• The companies claimed that AGR should comprise just the revenue accrued from core services and not dividend, interest income or profit on the sale of any investment or fixed assets.
• In 2015, the TDSAT (Telecom Disputes Settlement and Appellate Tribunal) stayed the case in favour of telecom companies and held that AGR includes all receipts except capital receipts and revenue from non-core sources such as rent, profit on the sale of fixed assets, dividend, interest and miscellaneous income.
• However, setting aside TDSAT’s order, Supreme Court on October 24, 2019, upheld the definition of AGR as stipulated by the DoT.

Q. What are its impact on the various stakeholders?

Telecom Sector

▪ Profits for telcos are under pressure from severe competition and the falling ARPUs (Average Revenue Per User). Given this, AGR due will seriously hurt financial stability of whatever telecom companies are doing business in the Indian market.

Indian Consumers

▪ The failure of a few large players could lead to one or two players emerging near-monopolies. This may leave the Indian consumer vulnerable to high pricing, sub-standard products and lack of options.

Banks

▪ The AGR issue has triggered panic in the banking industry, given that the telecom sector is highly leveraged.

▪ The AGR issue may add to the vulnerability of an already fragile banking system.

Indian Economy

▪ The collapse of the telecom sector may increase unemployment, and reduce investment, adding to our economic and social problems.

▪ The Telecom industry is critical to the government’s plans for a digital economy, including from the upcoming 5G spectrum auctions.

◦ 5G forms the part of critical infrastructure.

Government

▪ On the positive note, If companies are ready to pay AGR dues, it will lead to a higher contribution to the public exchequer. This could help bridge gaps in the fiscal deficit and bolster government revenues to rescue the slowing economy.