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 Bharat Ratna Atal Bihari Vajpayee laid foundation for telecom bail-outs
 
(Image Courtesy:PIB)
 
It is a tsunami of outcry and anguish over a very fair judgment delivered by the Supreme Court (SC). On 24th October 2019, SC upheld Department of Telecommunications (DOT's) definition of adjusted gross revenue (AGR).
What is there in the definition? Well, truckloads of money as was foreseen by Comptroller and Auditor General (CAG) way back in 2000. 
The verdict requires telecom service providers (TSPs) to pay to the Government the disputed components of AGR along with interest and penalty as specified in licence agreements. The amount to be paid is estimated in the range of Rs 92,000 crore to Rs 1.4 lakh crore for last over 15 years.
Vajpayee Government trashed CAG’s concern over real and presumptive revenue loss recorded in its report numbered 7 of 2000. And there hangs the 20-year saga of telecom revenue leakages that should come under gaze after SC verdict. It has not gone into the issue of leakages that arise to under-reporting, misclassification and other misconduct. The judgment is limited to AGR definition. 
In 2000, CAG also foresaw risk of repeat of the sob story in future. And the risk has recurred in past with telecom bail-outs & phased reduction in percentage of revenue that TSPs share with the Government. The bail-outs happened both under NDA and UPA. More recall of CAG & two other alarming reports later in this column. 
The emerging headlines are similar to the ones that were splashed in late nineties. That created favourable ecosystem for BJP-led NDA Government to shower unprecedented favours on TSPs in 1999.
Feel the raging tsunami of outcry with a sample of headlines: 1) AGR ruling to herald more job cuts, hiring freeze in telecom. 2) SC’s AGR verdict will have devastating impact on telecom firms, say experts. 3) AGR verdict: Banks fear additional stress from telecom service providers. 4) AGR verdict last straw in contributing to telcos’ financial distress, says COAI. 5) AGR verdict fallout: Can Airtel, Vodafone Idea survive the Rs 92,000-crore blow?
No wonder BJP-led NDA Government is not celebrating the judgment as Diwali gift. This is because it pioneered telecom bail-outs. The Government has not uttered one word to welcome the verdict. Its empathy with TSPs affected by the verdict is understandable as two dominant TSPs are generous in giving political donations to BJP. Compare this with the way Government defended its decision to pocket surplus reserves of Reserve Bank of India. 
Modi Government is also not blaming UPA for causing revenue loss that now has been plugged by SC. This is because the legal battle to defend AGR definition in SC was initiated under UPA regime. 
Critics of verdict are citing the same excuses that were given by the industry and the Government to justify 1999 bail-out telecom package. It later necessitated AGR definition. The chief excuse is that implementation of verdict would turn loans taken by TSPs into non-performing assets (NPAs) of the banks. 
It is here pertinent to quote a Government release dated 28th July 1999. It explained the “rationale” and “urgency” of the migration package. This enabled TSPs to shift from the competitively bid fixed fees to variable revenue-sharing fees. 
 Government stated: “financial institutions had an exposure of around Rs 10,000 crore in this sector and failure to implement the new telecom package wold have led to a substantial part of this becoming non-performing portfolios of these institutions”.  
Dismissing reports that migration package would inflict Rs 50,000 crore loss on the national exchequer, the release claimed “any projected revenue loss is largely notional”.
This loss had figured in a public interest litigation initiated in Delhi High Court (DHC). In its interim order issued in August 1999, DHC directed the Government to place migration package before the Council of Ministers. And the Cabinet approved the package at its meeting held on 21st October 1999.
In September 2002, DHC dismissed the petition as it was satisfied with Government’s replies to issues. The government reportedly told DHC that “irreversible” situation created by the fact of migration, the matter had become merely academic. “It is now too late in the day to go back on the steps taken. There has to be a uniform telecom policy.” 
Compare this with 2G scam that happened later under UPA, triggering a stinging verdict from the Supreme Court. It led to closure of few TSPs and cancellation of over 100 telecom licences. Did mainstream media and other stakeholders then ran a campaign against the Verdict? No. 
This shows the dominant TSPs’ skill to convince mainstream media to articulate so well its agenda. The media is least interested in connected the dots between the verdict & countless revenue benefits heaped on TSPs that enabled dominant TSPs to acquire so many rivals, thereby reducing competition
Has anyone quoted reports of CAG and Parliament standing committees to put SC verdict in right perspective? 
CAG report 7 of 2000 says: “Though the revenue sharing regime has been made effective from 1 August 1999, yet the system of verification of gross revenue of the licensees and maintenance of detailed records of revenue by each licensee has not been laid down
CAG stated: “Government even failed to define ‘Gross revenue’ before making the migration offer. Delays in finalisation of these modalities are fraught with the risk of frauds and non/short realisation of government share of revenue. Since complete and detailed records of gross revenue of the licensees collected from various subscribers would have to be maintained for correct assessment of government share, it was desirable that such modalities were decided before implementing migration package so as to avoid any under assessment of government share due to non-maintenance of proper records”.
CAG added: “The undue haste shown in issuing offers of migration without finalising necessary modalities is fraught with the serious risk of frauds and may also lead to demand for more concessions to licensees in future on similar grounds”. 
When the fledgling private sector TSPs found the going tough under fixed fee licensing regime in 2nd half of nineties, they cried for bail-out. They facilitated commissioning of studies on viability of TSPs to make a case for bail-out. They lobbied hard with Vajpayee Government. The power of lobbying can be gauged from the fact that telecom portfolio changed six times in Vajpayee cabinet. Instead of amending industrial sickness law to send TSPs to now scrapped Board for Industrial and Financial Restructuring (BIFR), the Government decided the fate of TSPs. 
The Government thus obliged TSPs with generous bail-out in July 1999. The framework for migration was paved by the new telecom policy (NTP 1999) unveiled in March 1999. The bail-out comprised migration of TSPs from tenders-determined fixed, yearly licence fee to administration-decided revenue-sharing fee, waiver of certain amount of fee and extension of validity of licences by five years.  
The migration package did not specify what constitutes revenue & how much should be shared with the Government. In its anxiety to appease TSPs, the Government thus left door for litigation ajar, thereby defeating a key objective of reforms - ending litigation between Government and telecom service providers (TSPs). 
Delivered on 24th October 2019, SC verdict says: “No litigant can be permitted to reap fruits on such inconsistent and untenable stands and litigate for decades in several rounds which is not so uncommon but is disturbing scenario projected in very many cases. We have examined the matter upon merits and then aforesaid conclusion indicates frivolous nature of objections”.
The Verdict has banked on the sanctity of migration package. As put by the Package “Migration to the NTP99 on the conditions mentioned above will be permitted on the premise that the aforesaid conditions are accepted as a package in its entirety and simultaneously all legal proceedings in Courts, tribunals or in Arbitration instituted by the license and Associations of Cellular and Basic Service Operators (COAI) & ABTO) against DoT or UOI (Union of India) shall be withdrawn. Further, any dispute with regard to the license agreement for the period up to 31.07.1999 shall not be raised at any future date. The acceptance of the package will be deemed as full and final settlement of all existing disputes whatsoever irrespective of whether they are related with the present package or not”.
The Package adds: “After the terms and conditions of the package are accepted, amendments to the existing license agreement will be signed between the licensor and the licensee.”
TSPs later relied on half-baked nature of reforms to wriggle out of this contractual commitment they made to grab migration package which was optional. Only one TSP did not accept package and later lost its licence. The litigation process started in 2003 at Telecom Disputes Settlement and Appellate Tribunal (TDSAT).
This was preceded by few rounds of differences over AGR definition between DOT and Telecom Regulatory Authority of India (TRAI). Under the relevant laws, TRAI can recommend & DOT can differ and take a final decision. Similarly, in a dispute between TSPs and the Government, TDSAT order is not binding on the Government. Hence DOT went to SC thrice in this case – first in 2007 and later in 2011 and finally in 2014-15. 
Reverting back to CAG’s 2000 report: “DoT went ahead with the proposal inviting licensees to migrate to revenue sharing regime without first fixing the quantum of revenue share to be charged as a licence fee from the operators. The quantum of revenue share would be recommended by TRAI in due course. For the intervening period, government has fixed 15 per cent of gross revenue as provisional licence fee, which would be adjusted after fixation of quantum of revenue share by the TRAI”.
The 15% share, which was reduced in phases to 8% in 2013, itself was generous sacrifice by the Government. This fact was neatly exposed by Parliamentary Standing Committee (PSC) on Communications in its report submitted in April 2000. 
The Committee asked DOT Secretary on what basis 15% revenue sharing was arrived at and whether any study was made in this regard. The Secretary replied that the Department obtained figures from some of the Operators to make a sensitive analysis as to whether they would be comfortably placed if the Department recovered 15 percent of gross revenue as the license fee.
As put by the Report, “The Department came to the conclusion that 15% or even up to 20% would be much reasonable because the operators would still make profits. Anything lower than 15% would have amounted to an undue advantage to them”.
PSC observed: “The overriding concern of the Department should be to safeguard the national interest and Government revenue. Therefore, the Committee strongly disapproves undue favours being given to the Private Operators at the cost of government revenue and views that it is undesirable and unwarranted and against public interest”.
In another report implementation of NTP 1999 submitted in August 2011, PSC slammed DOT for reducing its revenue share to 13% on the basis of national debate over the Internet that attracted 17,000 responses.
PSC stated: “It appears that 17000 responses were procured by those who after securing licences at exorbitant bids wanted to extract concessions from the Government at the cost of the exchequer. Even after four years of their operations, they are still unwilling to honour their commitment to the nation made in terms of VPTs(village public telephones) and rural telephony. Even in the urban areas, they are far behind their commitments. Private Service Providers have so far confined themselves to metropolis and cities which gives an impression that they are after the creamy layer to make windfall profits at the cost of BSNL and MTNL”.
It noted that Government has absolved TSPs of their commitment to pay fixed licence fee that was determined through competitive bidding. 
According to the report, “The Committee desires that penalties as envisaged in the licence agreement for non-fulfilment of roll out obligation be realised from defaulting licencees who took the nation for a ride by their false promises”.
Neither the Government nor the metro licences can dare show what they achieved under the original offers on the basis of which the Government handpicked them.
The Government can’t have double standards for favouritism in services sector
Unlike private airlines which are allowed to close without batting an eyelid, the Government always goes out of the way to bail out TSPs. They have been showered unprecedented benefits since opening up of telecom services in early nineties. These benefits helped Bharti Airtel and Vodafone Idea to emerge into formidable players. They kept acquiring and merging weak rivals and newcomers. 
The former raised equity & debt running into several billion dollars to create a telecom empire abroad especially in Africa. They should not mind paying back what is legitimate share of revenue to the national exchequer.  
They have the credentials and means to pay back money as mandated by SC. Alternatively, they can choose easy resolution route. It has been availed by hundreds of companies that default deliberately or due to other factors. 
Let laws of the land be uniformly applied to all segments of business – in this case services sector. 
 
Published by taxindiaonline.com 1st November 2019
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