1) Vodafone Idea faces huge AGR dues of around Rs. 58,000 crore following a Supreme Court ruling on how adjusted gross revenue should be calculated. 2) With limited cash reserves of Rs. 12,000 crore and quarterly losses of over Rs. 50,000 crore, it is unclear how Vodafone Idea will pay the large AGR dues within the 10-year timeline given by the Supreme Court. 3) Analysts believe Vodafone Idea will need a significant tariff hike, government relief measures, and equity infusion to survive the crisis caused by the AGR ruling.

1. Vodafone Idea
& its
AGR Saga
Taxation Laws | Prof. Shannu Narayan
Group 2
Ashutosh | Ashwin | Awhan | Ayush | Bala | Chanchalakshi

2. Introduction
▰ 2019, Supreme court stated that 21st January
2020, would be the last date to pay all the AGR tax
and Department of Telecom also supported this
▰ Post Audit
 Airtel INR 35000 Cr
 Vodafone Idea INR 60000 Cr etc.
 Most companies went bankrupt and the big
players are dealing losses
▰ Government compulsion : If AGR is not paid, CEO &
Executives will be jailed
▰ Problem with VI:
 Cash INR 12000 Cr
 Credit/spectrum INR 100000 Cr
With subpar revenue, where can VI pay AGR from, if it
doesn’t, banks or government will be at loss and
eventually tax payers will bear the impact?
▰ Post independence: Telecom, Electricity,
Pharmaceuticals service sectors
▰ Telecom industry was tax-free before 2002 hence, all
the telecom players started investing on the spectrum
and the infrastructure necessary for telecom
▰ Post 2002: Government demanded taxes as a
percentage of revenues
▰ Spectrum 8% and license 4% of the total revenue which
was termed AGR – Adjusted Gross Revenue
▰ Fast forward 2010, Telecom companies filed a case
against AGR
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3. What is AGR and what are its
issues?
Adjusted Gross Revenue: includes all revenue accrued to carriers, including that from noncore activities.
How it began?
AGR is a fee-sharing mechanism between government and the telcos who shifted to 'revenue-sharing fee' model in
1999, from the 'fixed license fee' model. In this course, telcos are supposed to share a percentage of AGR with the
government.
How is it calculated?
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.
Why this Dispute?
The dispute between the telcos and the government has been mainly on the definition of AGR. The two sides were locked
in a legal battle over the definition of AGR for more than a decade. While the government says that AGR includes all
revenues from both telecom as well as non-telecom services, the operators suggest that it should include only the
revenue from core services.

4. Government’s stand
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Telcos were required to share a percentage of their AGR (Aggregated
Gross revenue) with the government as annual license fee (LF) and
spectrum usage charges (SUC). The LF and SUC were set at 8 per cent and
between 3-5 per cent of AGR respectively, based on the agreement.
All the revenue collections goes to the Indian consolidated fund, which
requires parliamentary approval for the usage and hence more scrutiny.
Post the judgement by the highest court of the country, the total
payments that Telcos needs to pay, including penalties, interest charge
and actual fees comes out to be around ₹92,000 crore.
This comes at a time when two of India’s only three remaining private
sector telcos -- Vodafone Idea and Bharti Airtel - posted their highest-ever
quarterly losses (in 2nd Qtr of FY 2021) since inception.
The financial consequences encompasses
all the stakeholders including
 the telecom operators,
 government/regulator and
 the end customers.

5. Implications based on
Government’s stand
Implications on taxpayer:
 On one hand, taxpayers can cheer about
the higher contribution to the exchequer,
which could help bridge gaps in the deficits.
 At the same time, since the balance sheets
of the telcos are not in a great shape, post
the entry of Jio, the only way to earn more is
by increasing the ARPU (average revenue
per user), by charging more for the services.
Implications on VI:
 VI reported loss of Rs 50,921 crore for the September quarter, the highest loss
reported ever for any Indian company.
 Vodafone Group CEO said that the future of it’s Indian business is uncertain due to
unfriendly regulation, tax terrorism and expensive court rulings. Government
replied by expressing displeasure and disapproved Nick Read's statement.
Implication on the sector:
 As it is, the economy is on a rocky road, and at a time like this, if Vodafone were to
leave the country, that could hit investor sentiment.
 The market will eventually become a duopoly with just Jio and Airtel. This can be
problematic because both MTNL and BSNL are also in no shape to compete.
 The combined losses of Rs 74,300 crore for telecom majors Bharti Airtel and
Vodafone Idea may have a significant impact on the economy and the banking sector

6. Analyst’s View
Credit Suisse-
meaningful equity infusion by the 2HFY23, apart from strong
operational improvement
SBICap Securities-
If Supreme Court asked to pay in 10 years, installments
would be 7500-7853 crore range and in 20 years, it would
be 5100-5500 crore @ interest rate 8-9%
Motilal Oswals
VI requires an Rs 85 increase in ARPU to achieve Ebitda of
Rs 30,000 crore by FY22 to meet cash obligations
Analysts fret over VIL’s weak cash position with estimated
outstanding cash & equivalents of a modest Rs 2,660 crore
in FY20, high leverage ratio and net debt rising

7. SC’s Judgement and
Present Scenario
▰ Supreme Court in its judgement ,on 3rd September 2020, gave all telcos a 10-year timeline to complete the payments of
AGR dues.
▰ National Company Law Tribunal (NCLT) should decide whether or not spectrum can be sold under the Insolvency and
Bankruptcy Code.
▰ Based on the current covid-19 situation, all telcos should pay 10 percent of the total dues by March 31, 2021. Following
which they can make payments in annual installments between 2021 and 2031.
▰ Telecom companies would also have to make payments on or before February 7 every year. The non-payment of dues in
any year would lead to accrual of interest and invite contempt of court proceedings against such companies.
▰ For Vodafone Idea, which faces a payment of more than Rs 58,000 crore, the telco will have to pay nearly Rs 1128.4
crore as AGR dues every quarter for the next 10 years.
▰ Recently, the telecom department has issued a show-cause notice to Vodafone Idea for non-payment of license fee for
the fourth-quarter of the previous financial year (FY21).
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8. Can Vodafone Idea Survive?
▰ Even after a relatively favourable payment term, the Vodafone Plc
and Kumar Mangalam Birla controlled entity seriously needs to
revisit its survival plan.
▰ The staggered payout allowed by the Supreme Court will definitely
ease the cashflow situation of Vodafone Idea and might remove the
possibility of the telecom operator from shutting down at this
moment, but will that resolve the existential crises that the
company is facing?
▰ A combination of tariff hike, government relief measures, an equity
infusion by promoters or a strategic investor and any potential
surrender of unused spectrum to reduce future liability seems to
be the only route to ensure survival for Vodafone Idea.
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