Looks like the market has had enough of politics and has decided to grapple with issues that are more pertinent that looking at who wins where. The market seems to have ignored the pet peeve of the Govt – Ease of Doing Business index too. India gained 14 spots higher; if all things were hunky dory, the market would have celebrated this climb up but with Maruti reporting a 4-year low performance, marketmen do not seem too thrilled.
The thing which overshadowed everything else today was the Supreme Court (SC) ruling on the telecom companies. The SC upheld the definition of Adjusted Gross Revenue (AGR) calculation as stipulated by the Department of Telecommunications (DoT) and further telcos will now have to pay not only the original charges, but principal interest and penalties on delayed payments too! The SC has held that all revenues, except for termination fee and roaming charges, will be a part of the AGR.
Back of the envelope calculation done by DoT shows that the telcos now owe around Rs.92,000 crore as license fee + Rs.41,000 crore as spectrum usage fees to the Govt, but once the final AGR numbers are tallied, the figure might change. So Rs.1.33 lakh crore is what the companies are staring at.
This was a 14-year old long battle and it ended by putting more burden on the telecom companies. Bharti Airtel and Vodafone Idea are obviously down in the red as they might ending having to pay around Rs.22,000 crore and Rs.28,000 crore respectively for the license usage and another Rs.23,000 crore and Rs.11,000 crore for spectrum usage respectively.
Bharti is very upset with the verdict as it is already weakened by the existing financial stress and not to mention the havoc wrecked by Jio.
Ironically, of the 15 operators who have been named to pay up the bill to the Govt, only two of those from the private sector remain operational. MTNL and BSNL together owe some Rs.4600 crore. Reliance Jio has the lowest outstanding at Rs.13 crore as it started operations just three years ago. The Govt will not be able to get Rs.1.33 lakh crore but maybe just 50% of this as most of the others have exited the sector completely. Telcos have asked for a minimum of six months to pay their AGR dues and the bench said it will consider their request.
DoT charges the telecom companies an AGR for license (8% of total revenue) and spectrum usage (3 to 5% of total revenue) and the bone of contention was over the way in which the AGR was calculated.
This revenue includes even income earned from deposits, rents, dividend income and even sale of some asset. Naturally, the telecom companies felt this was unfair as they should be charged only for revenue arising out of pure telecom services.
The Telecom Disputes Settlement Appellate Tribunal (TDSAT) judgment had, however, exempted bad debt, foreign exchange fluctuations, and sale of scrap from the calculation of AGR.
In 2018, a single-judge bench of the Tripura High Court ruled that the revenue of telecom companies from 'non-licensed activities' could not be included while computing a carriers’ AGR. The Govt counteracted this by stating that telcos were under-reporting revenues and the Comptroller and Auditor General of India (CAG) pegged the understating to the tune of Rs.61,000 crore.
Well, after all this back and forth, today the SC ruling does not augur well for the telcos, which is already sitting on a consolidated debt of some Rs.7 lakh crore.
India offers one of the cheapest call and data rates in the world and this ruling will pretty much kill the already hurting sector. Maybe it would have been prudent for the Govt to have come up with an alternate mechanism for recovering this AGR arrears; charging retrospective will have huge implications on the earnings of these telcos.
Well, on the day when we proclaim to have climbed up on the Ease to Doing Business Index, this ruling comes across like one tight slap. No wonder the market is sulking.