Context-The government has constituted a Committee of Secretaries (CoS), headed by Cabinet Secretary Rajiv Gauba, to work out a relief package for the telecom sector

Issues of Telecom sector

• Long-running dispute between the sector and the state on how to calculate the government’s share of revenue, which it receives as part of the fee for handing over telecommunications spectrum. The companies argued that only their revenue from the use of spectrum should count; the government wanted a share of everything including, for example, revenue from rent.
• The Supreme Court  ordered the companies to pay the government not just the dues but a hefty penalty -- as well interest on both. The total amount the companies owe approaches $13 billion. Vodafone Idea owes $4 billion of that, Bharti Airtel around $3 billion.
• The government changed an earlier policy that subsidized spectrum to one involving auctions that would maximize the amount that it receives as revenue -- great news for the drafters of the budget, bad news for investment in the sector and overall growth.
• Jio’s entrance into the market has been great news for Indian consumers, who now get high-speed data at some of the lowest rates in the world. But it means that Jio’s already heavily burdened competitors may go under.Jio’s two rivals have long accused it of receiving favorable regulatory decisions, such as one that allowed 4G spectrum that had been assigned for data to be used for voice services as well
• Foreign investors will also note that they can’t even appeal to international arbitration anymore, since the Indian government unilaterally canceled the investment treaties that made that possible. Investment by existing operators into the new infrastructure that could power India’s future -- such as 5G -- looks unlikely in the near future.
• According to the note, an analysis of the financial performance of the TSPs reveals that the aggregate gross revenue of the industry between the years 2017-18 and 2018-19 has decreased. The price of data for the customer, at an average of ?8 per GB, is perhaps the lowest in the world. The average revenue per user (ARPU) per month has declined from ?174 in 2014-15 to ?113 in 2018-19. It is also estimated that a subscriber on an average uses 10GB of data and 700 minutes of mobile talk time per month

Concern of Supreme court ruling on AGR

• The Supreme Court’s ruling on Adjusted Gross Revenue has plunged the telecom sector into a severe financial crisis. Incumbent operators, already reeling under a debt of nearly 4 lakh crore, will now be asked to pay 1.3 lakh crore of dues to the Exchequer.
• The apex court has relied heavily on the migration agreement offered to the telecom operators in 1999, wherein the Centre converted the upfront money committed by the mobile players to a licence fee in the form of an annual revenue share. The revenue share was to be calculated on the AGR.
• According to the operators, the Department of Telecom changed the definition of AGR in 2002-03 to include non-telecom income such as foreign exchange gains and interest earned from bank deposits.
• The Supreme Court has held that the DoT was clear from day one on what would constitute AGR; therefore, it was unfair on the part of the operators to dispute the definition after having taken benefit of the migration package.
• The operators have been asked to pay the entire dues accumulated over the last 15 years, with interest and penalty. The biggest impact will be on Vodafone Idea, followed by Airtel, as they will have to pay between ?35,000-40,000 crore each

Committee of Secretaries (CoS) under Cabinet Secretary Rajiv Gauba 

• It will look into the demand of telecom service providers for deferment of spectrum auction payment due for the years 2020-21 and 2021-22, in order to ease cash flows in the industry,
• It also re-look at the Universal Service Obligation Fund (USOF) charge, which is currently at 5 per cent, while the TRAI in its earlier recommendations had suggested the reduction of this charge to 3 per cent.
• TSPs’ request for reduction of spectrum usage charges (SUC) may also be examined
• It will also look into future commitments for payment of spectrum purchased by TSPs and the licence fee, including the contribution to USOF.

Solution

• An immediate relief package to ensure operators’ financial viability in the light of the SC order and requirement to pay in three months.
• The longer-term relief to ensure long-term viability and financial sustainability and health of the sector.

What is AGR?

• The AGR is divided into spectrum usage charges and licensing fees, pegged between 3-5 percent and 8 percent respectively.
• As per DoT, the charges are calculated based on all revenues earned by a telco – including non-telecom related sources such as deposit interests and asset sales.
• Telcos, on their part, insist that AGR should comprise only the revenues generated from telecom services.

Spectrum Usage Charge

• It is the charge that is required to be paid by the licensees providing mobile access services, as a percentage of their Adjusted Gross Revenue (AGR).
• The spectrum slabs/rates for the same are notified by the Government from time to time.

Universal Service Obligation Fund (USOF)

• USOF ensures that there is universal non-discriminatory access to quality ICT services at economically efficient prices to people in rural and remote areas.Currently, it is charged at the rate of 5%, while the TSPs demand it to be reduced to 3%.
• It was created under the Department of Telecommunications in 2002.
• It is a non-lapsable fund, i.e., the unspent amount under a targeted financial year does not lapse and is accrued for next years’ spending.
• All credits to this fund require parliamentary approval and it has a statutory support under Indian Telegraph (Amendment) Act, 2003.