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Supreme Court AGR verdict on telecom companies

This is conversation between Mr Curious(C) and Mr Omniscient (O) on recent SC verdict on telcos and heavy fines on them.

C: I have heard supreme court has given some judgment against Telecom Companies. Because of that they have to pay more money to government. Why do they need to pay the money to government apart from taxes? And what was the judgment about?

O: Apart from the taxes telecom companies has to pay the license fee. To understand this, let’s understand the concept of National Resources.  Tell me, house where you are staying, owned by whom?

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C: Off-course, by me.

O: And what about coal beneath earth?

C: By government.

O: Nope! Government is no-one, but agent of citizens. That coal belongs to our country and we as citizen owns it. All these type of things are called National Resources. In fact any government company is also owned by us. Remember government is like agent of ours. However, these are on the name of President of India, who is representing us.

C: Got it. But how it is related to Supreme Court Judgment?

O: I am coming on it, don’t get impatient. Tell me how mobile works?

C: I don’t know but I know little bit like, satellites are involved to do transmission of voice and data.

O: That is enough to understand. Now tell me who set-up that infrastructure which enable the mobile service

C: ISRO ( Indian Space and Research Organization)

O: ISRO is owned by whom?

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C: Government of India and which is agent of citizen. So indirectly by us.

O: Yes! Absolutely right. Now, tell me, if anyone wants to use your house to stay, will you allow him to use it for free.

C: No, I will ask for rent.

O: What about the setup for mobile communication like satellite etc.

C: Similar to the case of house, if anyone want to use the setup for mobile communication like Vodafone or other telecom companies does, they should pay  rent to us, citizens who owns this setup.

O: You hit the bull’s eye. They pay this money to our agent and this fees is called License Fee. And who is our agent?

C: Government of India. So, Government of India demands the license fee from Telecom Industry. But what about the judgment?

O: I am coming on that. There are many way to charge he license fee. One of them is as the percentage of Revenue. For instance if a Telecom Company earns Rs 100 Cr as revenue  then certain percentage of that revenue is given as license fee. The dispute was between government and telecom operator regarding the way how revenue should be calculated?

C: Why should there be any dispute, all the money which they earn should be part of revenue.

O: This is what Indian Government was saying. But telecom operators are saying something else. Actually telecom operator earns money through various ways apart from the charging for telecom service. For instance Airtel rent out their tower to other telecom operator and charges fee for that. They also earn money from other non-telecom operations such as foreign exchange gains and interest earned from bank deposits. Telecom companies stand was that government should have cut as license fee only in income earned from telecom services not other non-telecom income.  There is a term called Adjusted Gross Revenue (AGR) which includes only that income on which license fee is charged. As per telecom companies AGR should include income earned from telecom operations only.

C: OKie! What was the ruling?

O: Supreme Court has given its ruling in favor of Government and told to include every revenue source in AGR. I also want to add one thing that this case was pending in court for around 14 years

C: How much more money telecom companies have to pay to government, now?

O: Telecom companies need to pay around Rs 1.3 lakh Crore to government. It will include the arrears, penalty and interest. However, this figure is not precise. There is negotiation going on between government and telecom operators.

C: I have heard that, Reliance JIO is not so much affected by this judgment. Isn’t they has to pay this extra amount?

O: They also have to pay. But tell me since when JIO was here?

C: Around 3-4 year back.

O: Since when you can see the Vodafone or Idea?

C:  Not sure but since early 2000.

O: Even before that. So you can see who has to pay more penalty and arrears.

C: Okie! As reliance was late entrant so less revenue share.

O:  Also, I want to add that there were around 15 telecom companies on which ruling applies. But 10 have already closed their shop or merged with other companies and now only 3 are left.

C: Who knows after this ruling we may left with only one or two telecom operator


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