Vodafone and Tata Teleservices make the government part owners in lieu of AGR dues

Report by Shuchi Giridhar

While we enjoy talking on the phone with our friends accessing the services provided by our telecom providers – Airtel, Idea, Vi, and Tata Teleservices, the issue of AGR dues has been troubling the telecom companies for a while now.  Want to know more? Let’s find out!

Before diving into the issue of AGR dues, let us understand what is AGR.

What is AGR?

Until 1999, telecom companies had to pay a fixed amount as telecom license fee to the Government.

Then, the government proposed a revenue sharing model where the telecom companies were required to pay a quoted percentage of their revenues to keep their telecom licences active.

The amount of revenue used to calculate the fee to be paid by the Telecom companies on licensing and spectrum was called Adjusted Gross Revenue.

The Issue of AGR Dues

The AGR system was going smoothly until 2005.

In 2005, the government enforced a new law stating that all the revenues of the telecom company should be considered for calculation of AGR which also included revenues from their non-core services such as sale or rental of equipments, interconnection charges, to quote a few. 

The telecom companies found this rule untenable (something that cannot be made real), as they felt that the other revenues should be kept out of AGR calculation and they were already paying a very high percentage of their revenue to the government to keep their licences.

This battle between the telecom companies and the Department of Telecommunications has been going for 14 years.

During this time, along with the AGR dues, the interest has been mounting on the telecom companies.

The Proposal by the Government

So, in September 2021, the Government came out with a reform package  wherein  the companies got:

1. A 4 year time as moratorium period to pay the dues, and

2. An option to convert interest on AGR dues into equity to be owned by Government.

In October, the companies were told that they have 90 days to give their options regarding the proposal.

Bharti Airtel and Vodafone Idea have conveyed their  acceptance of four year moratorium to pay the dues.

Vodafone has decided to convert its interest liability of 16000 crores into equity which allows the Govertment to own 35.8% of its shares, as a result of which, the ownership (holding) of the current owners will drop from 44% to 28.5%. This will make the Government of India the largest shareholder in Vi.

Despite being the largest shareholder, the government  has expressed its will to let the current operator run the company.

Tata Teleservices also agreed to the Government’s proposal and the Governement of India will hold 9.5% of its shares by converting the interest liability on AGR into equity.

But Bharti Airtel has chosen to pay the interest component of the AGR instead, and is not accepting the proposal of conversion into equity.

Question for You

What will be the effect of this equity ownership of the government? Think of all the possible results of this and share in the comments below. Remember: Nothing except fact based inference. No judgement, no unsubstantiated view. Share the facts and the inference you draw from them.