Adjusted Gross Revenue

Adjusted Gross Revenue (AGR) is a fee sharing mechanism. Under this, the telcos pay a usage fee to the Government.

AGR

Under AGR system, the revenue is shared between the telcos and the government. These telcos are those companies that shifted from fixed license fee model to revenue sharing fee model in 1999.

Background

The National Telecom Policy, 1994 liberalized the telecom sector. Under the policy, the licenses were issued to the telecommunication companies in return to a fixed license fee. Later in 1999, the Government provided an option to migrate to the revenue sharing model. In revenue sharing model, the telecom operators are required to share a percentage of their revenue as spectrum usage charges and annual license fee. This revenue is called the Adjusted Gross Revenue and this is fixed by the agreements signed between the companies and the Department of Telecommunication.

What is the issue around AGR?

There is no standard definition for AGR. The definition of AGR is under litigation for more than 15 years now. The Government of India argues that all revenue, that is, revenue from both telecom and non-telecom services should be included while calculating AGR. On the other hand, the telcos argue that the revenue collected from core services alone should be included. Their dividend, profit or interest or profit from sale of a fixed asset or an investment should not be included.

Understanding AGR issue in simple terms

Assume a company X. Now the total revenue of X for the year 2020-21 is Rs 100 crores. Of this, the company used Rs 10 crores and invested in company Y that is into real estate business (a non-telecom business). These 10 crores of investment brought in profit of Rs 1 crores. Now. Government of India argues that total revenue should be included while calculating AGR percentage. That is, Rs 100 crores + Rs 1 crores = Rs 101 crores. The telcos argue that only revenue, that is, Rs 100 crores alone should be considered while calculating AGR.

Tribunals and Courts in AGR

The Telecom Disputes Settlement and Appellate Tribunal in 2015 held that the AGR does not include revenue from non-telecom services. This favored the telecoms. However, in 2019, the Supreme Court upheld the Government definition of AGR, that is, to include revenue from the non-telecom services. However, the Apex court rejected the 20-year payment timeline of the AGR as proposed by the GoI. The court made it to 10 years.

Issues

The 2019 SC judgement pushed several telcos to bankruptcy. After SC judgement, it is estimated that the telcos owe Rs 92,000 crores to the government.