AGR Uncertainty Ends

The Economic Times 2nd September 2020 Save

Context: The Supreme Court (SC) verdict on the terms of paying past dues linked to adjusted gross revenue (AGR) has brought to an end the uncertainty surrounding the 15-year-old telecom case.

Supreme Court’s adjudication of the AGR issue

Defined AGR: The top court had upheld the government’s definition of AGR, and that meant a pay-out of Rs 1.47 trillion in dues by 15 telecom companies.
Allowing delayed payment: The SC asked the telecom companies to pay 10% of the AGR dues upfront before March 31, 2021,
- While staggering the remaining amount over a 10-year duration starting April 1, 2021.

Challenges to the SC verdict:

Cash Starved telecom sector: Telecom companies may still find the going tough because of its poor cash reserve situation.
- For, E.g. Vodafone Plc has stated that it would not put good money after bad in its Indian telecom venture.
- Even for debt-laden Bharti Airtel, the court relief may be temporary unless it takes measures to strengthen its balance sheet.
Low Tariff: Threat of duopoly or monopoly has impacted the tariff and thus the revenue collection of telecom companies:
- For, E.g. With the entry of Reliance Jio a few years ago, deep discounts have ruled the industry with tariffs plunging to new lows and telecom companies running into deep losses.

Way Forward:

Raise Tariff:
- While India has a monthly tariff of $2 for 16 GB data, in some other markets like the US or Europe, it is $50-60.
- The average revenue per user (ARPU) should cross Rs 200 and ideally touch Rs 250.
  - ARPU, which denotes revenue generated per user in a month for a telecom company, ranges between Rs 110 and Rs 160 in the country.
- In 2018, the Centre transferred the compensation cess to its own coffers, the Consolidated Fund of India, rather than to the compensation kitty.
Improve customer service: Operators must invest to ensure robust services and rectify issues like call drops and poor data connection.

Conclusion: The spectrum auction across several bands, including 5G, will be an opportunity for the telcos to show their intent, but they should go beyond that to do what it takes to satisfy subscribers.