Context: Bharti Airtel Ltd, India’s second-largest telecom operator, has urged the department of telecommunications (DoT) to convert its adjusted gross revenue (AGR) dues into equity.
Relevance of the Topic: Prelims: Adjusted Gross Revenue.
What is Adjusted Gross Revenue?
- AGR is the measure of the revenue earned by India's telecom sector from their licensed services. AGR is used to calculate the license fee and spectrum usage charges the telecom operators must pay to the government.
- Originally, calculation of AGR included revenue earned by telecom operators from both core revenue and non-core revenue (interest income, sale of assets etc.)
- In 2019, the Supreme Court ruled that the AGR of telecom operators would include both core and non-core revenue. This judgement led to an increase in the share of revenue which the telecom operators are required to pay to the Government.
- However, as part of Telecom Relief Package of 2021: AGR would include only the core revenue. Non-Core Revenue will be excluded from the calculation of AGR. This aimed to reduce the financial burden on the telecom operators in future.
Telecom Relief Package of 2021
The package aimed to provide space to the Telecom operators to improve their business and clear dues over a longer period. Key features:
- The government gave a 4-year moratorium on dues arising out of the AGR judgement by the Supreme Court (2019).
- Telecom operators have the option to convert deferred interest dues into equity at the end of the moratorium period.
- The definition of AGR has been changed to exclude non-telecom revenue.
- Rationalisation of spectrum charges for telecom operators:
- annual compounding of interest on spectrum usage charges (instead of monthly)
- interest rate lowered based on the formula MCLR + 2%.
- 100% foreign direct investment in the telecom sector through the automatic route.
Conversion of AGR into Equity
- Earlier in 2023, the government had converted ₹16,133 crore of Vodafone Idea interest dues into equity. The equity conversion in Vodafone Idea happened as part of the telecom relief package of 2021.
- The moratorium is set to expire in 2025, after which the telecom operators would have to start making yearly payments to the government to clear their liabilities.
Benefits of conversion of AGR into Equity:
It is a win-win situation for both the government and Telecom operators.
- Telecom operators would be relieved of making annual installments pertaining to past dues and save on cash outgo in terms of interest.
- The government can sell the stake in the market and earn a premium on its investments, given the share price has an upside and the company is doing well financially.
However, the government is not considering giving any fresh relief to the telecom sector.