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16 Sep, 2021

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Adjusted Gross Revenue (AGR) issue of Telecoms

GS-III : Economic Issues Telecom sector

What is Adjusted Gross Revenue (AGR)?

  • Adjusted Gross Revenue (AGR) is the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT). It is divided into spectrum usage charges and licensing fees, pegged between 3-5 % and 8 % respectively.
  • As per DoT, the charges are calculated based on all revenues earned by a telco – including non-telecom related sources such as deposit interests and asset sales. Telcos, on their part, insist that AGR should comprise only the revenues generated from telecom services.

What is the issue of Adjusted Gross Revenue (AGR) of Telcoms?

  • 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. AGR is then computed after allowing for certain deductions spelt out in these license agreements. The LF and SUC were set at 8 per cent and between 3-5 per cent of AGR respectively, based on the agreement.
  • The dispute between DoT and the mobile operators was mainly on the definition of AGR. The DoT argued that AGR includes all revenues (before discounts) 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 sale of any investment or fixed assets.
  • In 2005, Cellular Operators Association of India (COAI) challenged the government’s definition for AGR calculation.
  • 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.

Why is Adjusted Gross Revenue (AGR) important?

  • The definition of AGR has been such a contentious issue because it has huge financial implications for both telcos and the government. The revenue shared by telcos with the government goes into the consolidated fund of India.
  • It was estimated, after the SC’s judgment, that the telecom operators owe the government about Rs.92,000 crore in back charges, interest and penalties on license fee alone.
  • While the government has been deprived of the extra revenue, the financial implications for telecom companies — who now have to cough up overdue amounts piled up for years — are serious too.
  • Especially at the current juncture, when profits for telcos are under pressure from severe competition and the falling ARPUs (average revenue per user).

Why is Adjusted Gross Revenue (AGR) in news?

  • The Cabinet approved several measures to extend a lifeline to the cash-strapped telecom sector, including a redefinition of the much-litigated concept of adjusted gross revenue (AGR) to exclude non-telecom revenue and a four-year moratorium on players’ dues to the government.
  • Telecom Minister Ashwini Vaishnaw said the government was keen on ensuring that there were more players in the sector and consumers retained choices when asked about the fears of a duopoly emerging with just two major telecom players — Bharti Airtel and Reliance Jio.
  • In all, Mr. Vaishnaw announced nine structural reforms and five procedural reforms for the sector, including a fixed calendar for spectrum auctions with an extended tenure of 30 years for future spectrum allocations, and a mechanism to surrender and share spectrum. Foreign direct investment (FDI) in the sector has also been allowed up to 100% under the automatic route, from the existing limit of 49%. Together, these measures would pave the way for largescale investments, including for 5G technology deployment, and generate more jobs, he said.
  • The earlier definition of AGR, backed by the Telecom Department and upheld by the Supreme Court in 2019, had made telcos liable to pay ?1.6 lakh crore. Last September, the top court granted players 10 years to pay up, starting April 2021. The change in definition that will reduce the burden on telcos, applies only prospectively, so past dues remain payable.
  • Interest on those dues will now be compounded annually instead of monthly and the Minister said interest would be charged at a ‘reasonable’ rate of MCLR plus 2%. MCLR refers to the lowest lending rate banks are permitted to offer.

Source: TH

Fuel Prices quicken WPI inflation to 11.39% in August

GS-III : Economic Issues Inflation

Fuel Prices quicken WPI inflation to 11.39% in August

  • Inflation in wholesale prices resurged to 11.39% in August, staying in the double digits for the fifth month in a row.
  • Inflation in manufactured products escalated for the fourth month in a row to 11.4%, as the second order effects of high fuel prices kicked in.
  • Fuel and power inflation firmed up to 26.1% in August after a dip in July, even though food price inflation moderated to 3.43% from 4.46% .
  • “LPG, petrol and diesel witnessed inflation of 48.1%, 61.5% and 50.7% respectively,” said Sunil Kumar Sinha, principal economist at India Ratings and Research. He stressed that high fuel inflation tends to transmit across sectors as they push up transport, input and wage costs.
  • Core WPI inflation, which leaves out fuel and food, hit an all-time high of 11.1%, continuing an uninterrupted hardening streak of 15 months, ICRA chief economist Aditi Nayar flagged.
  • Overall wholesale inflation had moderated to 11.16% in July after hitting a record high of 13.11% in May.

Source: TH

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