Great Indian telecom mess: How a missed chance threatens existence of prized PSUs

Conflict over what constitutes adjusted gross revenues is behind the telecom mess, which now threatens PSUs such as GAIL, Oil India, DMRC.

Representational image | Pixabay

New Delhi: First, a seemingly flawed definition of what constitutes telecom revenue was coined in 2001 and triggers a prolonged legal battle between phone companies and the government.

Fourteen years later, in 2015, the telecom regulator makes recommendations proposing a change in the definition of revenue used to calculate license and spectrum fee — a change that could have fairly addressed the issue prospectively.

But the Narendra Modi government ignores or fails to act on the recommendations.
Four years later, in 2019, the Supreme Court rules in favour of the government that in effect pushes telecom firms to cough up Rs 1.47 lakh crore. The order ends up impacting even non-telecom public sector companies.

This, in essence, is the bizarre story of missed opportunities that is at the heart of the great Indian telecom mess that not only threatens to wipe out two of the three major players in the sector but also sink several prized PSUs which have nothing to do with telecom.

The story begins with the conflict over what constitutes adjusted gross revenues.

How the crisis played out

In 1999, the then Union government offered telecom companies the option of migrating to a revenue sharing arrangement from the previous regime of a fixed license fee that was making operations in the sector non-viable.

However, the definition of what constitutes adjusted gross revenues (AGR) — or revenues of companies on which the government can levy a 8 per cent license fee and a 5 per cent spectrum usage fee — was finalised in 2001.

According to this, the AGR should factor in all income accruing to a telecom service provider, including telecom and non-telecom businesses.

The telecom companies were of the view that only income from telecom services is taxable. So in 2003, the operators moved court.

In its judgment last year, the Supreme Court upheld the government’s stance. This impacted not only privately-owned telecom companies like Airtel and Vodafone, but even public companies like GAIL, Oil India, Power Grid Corporation of India (PGCIL), Delhi Metro Rail Corporation and RailTel Corporation.

These PSUs operate in other sectors and telecom isn’t their core business. However, they use the licences for internal operations.

With the Supreme Court order in effect, the Department of Telecom (DoT) has sent notices even to state-owned companies, which are now facing an existential crisis because of dues exceeding a total of Rs 3 lakh crore.

While GAIL India is facing a demand of dues to the tune of Rs 1.7 lakh crore, PGCIL’s dues are estimated at Rs 1.25 lakh crore and Oil India’s at Rs 48,000 crore.

Both the telecom companies and PSUs have separately approached the apex court seeking clarity and relief while no relief has been forthcoming from the government.

Last month, Oil Minister Dharmendra Pradhan attributed the DoT’s notices to oil PSUs as a “communication gap”.

‘To and fro’

Rajan S. Mathews, director general of Cellular Operators Association of India (COAI), said the telecom industry has always maintained that AGR should only relate to telecom revenue from licensed activity.

“The matter has gone to and fro between the regulator, the telecom disputes settlement and appellate tribunal and the courts,” he said.

In its October 2019 judgment, the apex court said companies “cannot avoid the consequences of the contractual definition which has been accepted by the parties, and they are bound to make payment of licence fee on the basis of gross revenue, which would be the total revenue of the licensing company”.

Former civil servants point out that the court failed to appreciate that agreements between the government and the private companies are far from voluntary, and the government always has an upper hand in negotiations.

Speaking to ThePrint, Rahul Khullar, former chairman of Telecom Regulatory Authority of India (TRAI) said the companies had no option but to agree with the revenue sharing arrangement back then in 1999 and enter into an agreement with the government.

“Else they would have had to shut their business in which they had already sunk crores of rupees,” he said.

What TRAI proposed in 2015, and government inaction

In a report submitted to the government in January 2015, TRAI had sought to put the matter to rest at least prospectively.

At the time, it had said that there is “considerable merit in the argument that the levy of licence-related fees and charges should not traverse beyond the revenues accruing to the licensee from telecom operations/ activities”.

It had proposed that the total gross revenue should be reduced by the “revenue from operations other than telecom activities/ operations”.

To be sure, the regulator’s recommendations are not binding on the government. Over 5 years after this particular report, the Modi government is yet to address the issue.

Khullar, who was the TRAI chairman when the recommendations were made, said the January 2015 suggestions had clear advantages.

“It had a clearly demarcated list of what should not be counted in the AGR. So all other items that were not on the list would have been counted under the definition of AGR. This would have prevented legal disputes,” he said.

This would have allowed firms like Gail India, Delhi Metro and Oil India to not pay a levy on their entire income, said Khullar. But he added that the DoT seems to be scared to take decisions that could have any kind of revenue implications.

“They are happy to toss file from here to there. Many bureaucracies have this problem but ever since the 2G case and people going to jail, this has worsened,” he said.

State-owned firms will sink

Firms like Gail India, Oil India, Power Grid and RailTel have disputed AGR claims made by DoT and have approached the apex court for clarification.

Khullar dismissed the notices served by the DoT on PSUs, pointing out that the core business of these firms is not telecom. He said PSU firms will “go belly up” if they have to pay these dues, before adding that one government department levying this on other state-owned arms is “like robbing Peter to pay Paul”.

Former ONGC chairman R.S. Sharma told CNBC TV18 last month that the AGR demand on firms like GAIL and Oil India was a “joke”.

“These companies are not into the telecom business. They got these licences to specifically meet their business needs. Without any delay, the government should come out with a clarification that these PSUs will be exempted from payment of AGR dues,” he said.

“The department of telecommunications has no logic and no justification to collect these arrears from these firms… These companies will sink without any trace (if made to pay these dues),” he added.

What’s next

All eyes are now set on the Supreme Court where the private telecom companies and the oil PSUs have filed appeals.

While the private firms have sought permission to negotiate the terms for staggered payment of dues with the DoT, the oil PSUs have sought clarity on whether the judgment is also applicable on them.

COAI chief Mathews pointed out that the court decision will now define the way forward. Until then, all stakeholders will adopt a wait and watch approach.

Khullar said the DoT can do little to save the PSUs now as it cannot be seen discriminating between companies. At best, it can waive penal interest and penalty for all parties — which amounts to 75 per cent of the Rs 1.47 lakh crore dues of the telecom firms.