Q) “Many telcos are on the verge of collapse due to the huge financial liability under AGR rules. In this light, explain the ramifications of AGR rules on various stakeholders? Mention various reforms needed to save the telecom sector from this crisis.” (250 words)
Answer :
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 percent and 8 percent respectively.
Recent issue
- The SC bench observed that 15 or 20 years was not a reasonable time period and the telcos must come forward with an appropriate time frame.
- The Centre had earlier urged the court that up to 20 years be given to the firms for the payments.
- The telcos said they were in no position to give fresh bank guarantees for the payments.
AGR issue Impact on the various stakeholders
Telecom Sector
- At the current juncture, profits for telcos are under pressure from severe competition and the falling ARPUs (Average Revenue Per User). Given this, AGR due will seriously hurt financial stability of whatever telecom companies are doing business in the Indian market.
- Also, Telecom equipment suppliers may also go down as their dues will not be paid.
Indian Consumers
- The failure of a few large players could lead to one or two players emerging near-monopolies. This may leave the Indian consumer vulnerable to high pricing, sub-standard products and lack of options.
Banks
- The AGR issue has triggered panic in the banking industry, given that the telecom sector is highly leveraged.
- Failure of the cascading effect will be felt across the economy as banks face the consequences of the company going bankrupt (non-performing assets will rise).
- The AGR issue may add to the vulnerability of an already fragile banking system.
Indian Economy
- Apart from impacting the banking sector, the collapse of the telecom sector may increase unemployment, and reduce investment, adding to our economic and social problems.
- The Telecom industry is critical to the government’s plans for a digital economy, including from the upcoming 5G spectrum auctions.
- 5G forms the part of critical infrastructure.
Government
- On the positive note, If companies are ready to pay AGR dues, it will lead to a higher contribution to the public exchequer. This could help bridge gaps in the fiscal deficit and bolster government revenues to rescue the slowing economy.
Reforms to save the telecom sector
- The government should give up demanding AGR as a lump-sum amount, rather, it can be broken in instalments to be paid over the period.
- As this is a commercial matter, the government and telcos should also explore Alternative Dispute Resolution (ADR)
- Since the telecom industry is crucial to India’s next wave of growth through digitalisation, the government should not be blinded by short-term revenue considerations that imperil long-term prospects.
- The Government should consider accepting the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) ruling of 2015 on AGR.
- the government needs to actively facilitate shared infrastructure with policies and legislation. One way is through consortiums for network development and management, charging for usage by authorised operators.