The Union Cabinet on September 15, 2021, approved major structural as well as procedural reforms in the telecom sector with the aim to protect and generate employment opportunities, promote healthy competition, protect interests of the consumers, infuse liquidity, encourage investment and reduce the regulatory burden on Telecom Service Providers (“TSPs“).1 This move of the government coupled with the Supreme Court’s recent judgement in the case of Union of India vs. Association of Unified Telecom Service Providers of India2 on September 1, 2021, comes as a respite to India’s financially distressed telecom sector.
To understand the judgement, it is pertinent to discuss the background of this case. The dispute stems from the Adjusted Gross Revenue (“AGR“) dues owed by the TSPs to the government in relation to their revenue sharing obligations under license agreements with the government. The definition of AGR in these license agreements has been a contentious issue for over 15 years. In 2003, the association of unified telecom service providers of India filed a petition in the Telecom Disputes Settlement and Appellate Tribunal (“TDSAT“), alleging that AGR should only relate to revenues directly arising out of licensed telecom operations of the TSPs. However, the government argued that the dues were payable on the overall revenue of the TSPs. The TDSAT pronounced an order in favor of the TSPs and held that AGR would include only revenue from license activities.3 This decision was appealed in the Supreme Court in 2011, wherein the Court held that the TDSAT did not have the jurisdiction to decide upon the validity of the terms and conditions of the license including the definition of AGR and the order of the TDSAT was accordingly set aside.4
Subsequently, the TSPs filed appeals against this ruling of the Supreme Court. However, the Court refused to alter the definition of AGR. The Supreme Court in its judgement dated October 24, 2019, upheld the definition of AGR as contemplated in the license agreements and stated that “the definition in the agreement is unambiguous, clear, and beyond the pale of doubt, and there is no confusion in the definition of gross revenue, which is the basis for realisation of the licence fee. Licensees have made a futile attempt to wriggle out of the definition in an indirect method, which was rejected directly in the decision of 2011 between the parties and it was held that these very heads form part of gross revenue.”5
While the Court maintained its stance on no re-assessment of the demands raised by the Department of Telecommunication (“Dot“) in respect of the AGR dues, it however, provided relief to the TSPs with regards to the payment of these dues on September 1, 2021. It was held that the TSPs would be allowed to make the payment of the said dues in 10 yearly installments ending in March 2031. The Apex Court deemed it fit to provide a staggered payment schedule to the TSPs considering their financial stress as well as the banking sector’s involvement in the same.
Following this judgement of the Supreme Court, the government has announced substantial reforms as part of a relief package for the telecom sector. The salient measures are as described below:
- Rationalization of AGR: The highly debated issue regarding the definition of AGR has finally been settled by the government in favor of the TSPs. Non-telecom revenue has been prospectively excluded from the definition of AGR. However, since the application of the same is not retrospective, this reform will not have any bearing on the past AGR dues of the companies.
- Relaxation in bank guarantees to be furnished: The bank guarantee requirements against license fee and other similar levies has been reduced. Now, there are no requirements for furnishing multiple bank guarantees in different licenced service areas in the country. One bank guarantee would suffice for the purpose of the fees and other levies. Further, no bank guarantees would be required to secure instalment payments in spectrum auctions.
- Removal of penalties and reduction of interest: From October 1, 2021, any delayed payments of license fee or spectrum usage charge will attract a reduced interest which is compounded annually instead of monthly. Additionally, penalty and interest on penalty has been removed.
- 100% Foreign Direct Investment in telecom sector: Earlier, the government’s approval was required for Foreign Direct Investment (“FDI“) in the telecom sector above the limit of 49%. Now, 100% FDI under the automatic route has been permitted.
- 4-year moratorium: As a result of the Supreme Court’s recent judgement discussed above, a moratorium of up to four years in annual payments of AGR dues has been approved with the protection of the net present value of the due amount. The TSPs that avail this moratorium will have the option to pay the interest amount arising due to the said deferment of payment by way of equity. The government may convert this equity at the end of the moratorium period, guidelines for which will be finalized by the Ministry of Finance.
- Encouragement of spectrum sharing: TSPs are required to pay spectrum usage charges for spectrum sharing under the relevant DoT guidelines.6 However, these charges hereafter would not apply to the spectrum acquired in future spectrum auctions. Further, the tenure of spectrum has been increased from 20 to 30 years and the surrender of spectrum will be permitted after 10 years from spectrum auction.
- Relaxation in compliance requirements: To promote ease of doing business in India, the cumbersome requirement of licenses under Customs Notification (1953) for wireless equipment has been removed and replaced with self-declaration. Further, other measures such as self know-your-customers has been permitted, paper customer acquisition forms (“CAF“) are to be replaced by digital data storage and warehouse audit of CAF will not be required.
These measures7 will provide a stimulus to the telecom industry. The reforms have been announced at a crucial time for the industry and could be a game-changer for the TSPs. Numerous amendments in license agreements, DoT and Telecom Regulatory Authority of India’s notifications as well as DoT guidelines would have to be made to implement these changes.
3 (2007) 5 Comp LJ 308 (TelecomDSAT)
4 AIR 2012 SC 1693