Oct 13, 2021

The telecom reforms – No more cross-connects


On September 15, 2019, the Government of India announced certain reforms in the telecom sector, which are expected to be a respite for many telecom service providers (“TSPs”)[1]. Ever since the tragic blow inflicted by the October 2019 ruling of the Supreme Court in Union of India v. Association of Unified Telecom Service Providers of India & Ors.[2] (“AUSPI Judgment”) which allowed the Department of Telecom (“DoT”) to collect the license fees due to it, arising from non-telecom and non-licensed activities; the TSPs were suddenly saddled with colossal indebtedness. The AUSPI Judgment was followed by a trail of orders which crystallised the amounts shown to be due during the course of hearing and further disallowed any form of recalculation, reassessment or negotiation. While the apex court allowed the TSPs to pay the total amount crystallised as due in a span of 10 years, one must bear in mind that this was after the Union of India had sought an accommodation of 20 years to enable them to make the payment.[3]

The AUSPI Judgment and the orders that followed pushed some of the leading TSPs to the verge of insolvency. The game of survival of the fittest had commenced, and some of the leading TSPs were left hunting for funds to come out of indebtedness.

In this backdrop, the Union Cabinet granted its approval for a series of structural and procedural reforms in the sector, including and also addressing the liquidity requirements of the TSPs. Further, on October 5, 2021, a statement was made before the Supreme Court on behalf of the Central Government that it is desirous of reviewing and/or reconsidering its decision to proceed with the pending appeals pertaining to the collection of One Time Spectrum Charges (OTSC”) dues from the TSPs retrospectively.[4] The reforms which the Government has put forth are expected to protect and generate employment opportunities, promote healthy competition, protect the interests of consumers, infuse liquidity, encourage investment and reduce the regulatory burden on TSPs.

I.                 The AGR battle – The story so far     

  1. The grievance and the early battles

The DoT granted licenses to the TSPs for establishing, maintaining and working of telegraphs under Section 4 of the Indian Telegraph Act, 1885. The License (UASL/ UL) states how the license fee is to be calculated, which is a percentage of the Adjusted Gross Revenue (“AGR”) earned by the TSP. In 2003, the licensees and the telecom associations (COAI and AUSPI) questioned the validity of Clause 19 (i.e., the definition of AGR). The Telecom Disputes Settlement and Appellate Tribunal (“TDSAT”), while adjudicating such challenges in 2006, held that there was no adequate consultation with the Telecom Regulatory Authority of India (“TRAI”) as mandated under the TRAI Act, 1997. The TDSAT did not consider it fit to delve into the exercise of finding out which component of AGR[5] deserved to be retained or excluded at that stage. However, when the matter was remanded back by the Supreme Court in light of the TRAI Recommendations in 2007, the TDSAT did precisely this., i.e., it adjudicated on the inclusion/ exclusion of the certain revenue heads within the definition of AGR depending on whether they are revenue heads arising out of licensed/ non-licensed activities.[6]

The action of the TDSAT of excluding specific heads from the definition of AGR on the ground that they are not part of the licensed activity was disapproved by the Supreme Court in the famous 2011 decision of Union of India v. Association of Unified Service Providers of India[7] (“2011 Judgment”) as it amounted to challenging the validity of the licence condition. However, the Supreme Court in the 2011 Judgment held that the TDSAT could interpret the terms and conditions of the License Agreement in the context of any demands raised by the DoT, keeping in view the facts and materials based on which the DoT raises such demands.

  1. Interpretation of the Definition

After the 2011 Judgment, the DoT issued Show Cause Notices and demand notices for different financial years, which were challenged before the TDSAT by the TSPs. However, the basis of such challenge this time was on the correct interpretation of Clause 19. In its 2015 decision (“2015 Judgment”), the TDSAT questioned the real intent behind the definition of AGR.[8]Does the definition, for instance, intend also to cover income that is not real but only notional or heads of inflow that in their very nature do not comprise revenue but are classified as capital?

From an accounting perspective, the TDSAT in 2015 laid down certain basic principles for calculating Gross Revenue.[9]


  • Capital receipts are different from revenue receipts; hence, receipts of capital nature cannot be added to the “gross revenue”.
  • The same revenue cannot be subjected to double charge. It follows that the same item of inflow cannot be added up more than once for computation of gross revenue
  • (a) No one can earn revenue from oneself.

                (b)  One cannot treat someone else’s revenue as one’s own.”

Through the lens of these basic principles, the TDSAT reassessed the different revenue heads and held that some of the revenue heads could not have been intended to be included in the definition of ‘Gross Revenue’. Accordingly, instead of redefining AGR or striking down the Clause 19, the TDSAT interpreted the terms and conditions of the License by applying the Accounting Standards, and laid down the accounting principles mentioned above, which were to be applied while computing the license fee to be paid by TSPs. The TDSAT consequently set aside all demand notices raised by the DoT and directed the DoT to rework the license fee to be paid by the TSPs.

  1. Back to the Supreme Court – the finale

The TSPs, as well as the DoT, approached the Supreme Court in separate appeals against the 2015 Judgment. While the TSPs challenged the 2015 Judgment on the ground that the accounting principles were not uniformly applied to all the heads by the TDSAT (some of the heads which were held to form part of the definition), the DoT challenged the same in its entirety.

The Supreme Court, in the AUSPI Judgment, set aside the TDSAT decision and allowed the appeals filed by the DoT. It was held that the definitions of Gross Revenue and AGR are broad and that the overall revenue of a TSP has to be taken into account for the determination of its license fees without set off as provided in the definition. The Supreme Court thereafter delved into the adjudication of the various revenue heads considered by the TDSAT on whether they could be interpreted to be outside the scope of Gross Revenue. The decision on the revenue heads which were held to be falling outside the definition of AGR was reversed, and the decision on the revenue heads which the TDSAT held to be falling within the definition of AGR was upheld by the Supreme Court. Further, the Supreme Court also upheld the interest, penalty, and interest on penalty levied upon the licenses over and above the principal license fee alleged to be due by the DoT.

During the course of the hearing of the civil appeals, the DoT placed before the bench a chart containing the amounts which, according to it, were due and payable by each of the TSPs. The total amount due from all the TSPs combined as per this chart was INR 92,641.61/- crores. In a separate order that immediately followed the AUSPI Judgment, the bench granted a period of three months to the TSPs to deposit the amount due.[10] After the Review Petition filed by the TSPs were dismissed, by an order dated February 14, 2020, the Supreme Court reprimanded the desk officer of the DoT for passing a direction to the Accountant General to not insist on any payment pursuant to the AUSPI Judgment and not take any coercive measures during the pendency of the Review Petition. Furthermore, the Managing Directors of the TSPs were also directed to show cause as to why contempt proceedings should not be initiated against them for not depositing the amount.

  1. Larger dues and efforts to survive

To make matters worse for the TSPs, after holding that the amount due was crystallised by way of an order dated March 18, 2020 (while also holding that there could not be any reassessment/recalculation of the dues), the Supreme Court (in its order dated July 20, 2020), accepted the revised unilateral calculation of the DoT which it had filed in an application seeking modification of timelines, as final amounts due and payable by each of the TSPs. The new figures contained not just the license fee but also the Spectrum Usage Charges, the calculation of which was also based on AGR. The total amount due after deducting the payment that some of the TSPs made, now stood at a mammoth INR 1,43,271.74/- crores. These included the amounts due from certain TSPs who were not parties to the litigations and certain TSPs who by now were under insolvency. Thus, the litigations challenging Spectrum Usage Charges were also effectively killed by the Supreme Court.

The Supreme Court, in its judgment dated September 1, 2020[11], examined the bona fides of certain TSPs who were under insolvency. The DoT had objected to the transfer of licenses by certain TSPs in view of the arrears that had to be cleared, which was a precondition for it to grant permission for such transfer. The Supreme Court left it for the NCLT to decide on the questions such as whether the AGR dues could be termed as operational dues, whether spectrum could be used without payment of the dues, and whether such dues can be wiped off, resorting to the proceedings under the Insolvency and Bankruptcy Code, 2015 (“IBC”). Where the spectrum of the license holder was “shared” under the Sharing Guidelines, 2015, it was held that “the shared operator TSPs cannot be saddled with the liability to pay the past dues of AGR of the licensees that have shared with spectrum with the original licensees”. In cases where the spectrum trading had taken place under the Spectrum Trading Guidelines, 2015, it was held that the sellers’ dues prior to the conclusion of the spectrum trading could not be upon the buyer.

In the meantime, the Union Cabinet, after envisaging the larger interest and economic consequences placed before the Supreme Court, a formula which suggested that all licensees who were impacted by the AUSPI Judgment be allowed to pay the unpaid/remaining past amount of DoT calculated dues in annual instalments over 20 years, duly protecting the net present value of the said dues using a discount rate of 8% (based on One Year Marginal Cost of Lending Rate of SBI). Further, it was also suggested that the interest, penalty and interest upon penalty would not be levied beyond the date of the AUSPI Judgment upon the unpaid past dues. There was also a suggestion to add to/adjust any change in the amount of past dues arising from the AUSPI Judgment, after reconciliation between TSPs self-assessment and the DoT’s calculation, against the payable instalment amounts.

The Supreme Court considered the above proposals of Union Cabinet in its September 2020 judgment and held that the period of 20 years was excessive and reduced it to 10 years. The Supreme Court also refused to allow any form of reassessment of the amounts due.

Some of the TSPs made a final dash by filing applications seeking modification of the AGR dues and correction of specific arithmetic errors in its calculation. The Supreme Court however, vide its order dated July 23, 2021, dismissed these applications as well.

II.             A ray of hope

  1. Lessons learnt

Several lessons were learnt, both by the TSPs as well as the Government. Firstly, the question of interpretation of the definition of AGR was sealed, and the pursuance of various pending writ petitions before the various high courts on the validity of the definition of AGR or dues on Spectrum Utility Charges would be a futile exercise for the TSPs. The Supreme Court practically closed all loopholes pertaining to such challenges. Secondly, the train which allowed the TSPs to reconcile and renegotiate on the pending dues also left the station. The efforts made by the DoT to allow any kind of reconciliation also came at the fag end when the bench had already concluded that it would not allow any form of recalculation/reassessment.

The DoT dues form only a part of the total debt of the TSPs. During the pendency of the civil appeals before the Supreme Court, several TSPs had been forced to step back and enter into a revival mode through Insolvency Resolution Processes under the IBC. In the end, the battlefield was left high and dry with a handful of survivors.

With the dwindling number of players in the sector and the challenges posed from an economic standpoint, in addition to the damage caused by COVID-19, the Cabinet made up its mind to pass certain reforms with the objective of boosting the proliferation and penetration of broadband and telecom connectivity. Nine structural reforms, five procedural reforms and certain relief measures for the TSPs were made in this regard.[12]

  1. The reforms

First and foremost, the definition of AGR is changed to exclude the revenues that arise from non-telecom activities[13]. It may be noted that the levy of license fees from non-telecom activities had triggered the battle between the TSPs and the DoT in the first place, even though this later narrowed down to the question of interpretation of the definition of AGR. The Government has introduced a new clause defining “Applicable Gross Revenue”[14] by reducing from Gross Revenue the following items :-

  • Revenue from operations other than telecom activities/ operations.
  • Revenue from activities under a license permission issued by Ministry of Information and Broadcasting.
  • Receipts from the USO Fund.
  • Other income such as (a) Income from Dividend, (b) Income from Interest, (c) Capital Gains on account of profit of Sale of fixed assets and securities, (d) Gains from Foreign Exchange rates fluctuations, (e) Income from property rent, (f) Insurance claims, (g) Bad Debts recovered, (h) Excess Provisions written back.

The former definition of AGR, which the TSPs had fought over for a long time, excludes certain specific items from Gross Revenue. Whereas post the 2021 amendment, the very same items which had to be reduced from Gross Revenue, to arrive at AGR will now be reduced from Applicable Gross Revenue as defined above.

Previously, the TSPs under Unified License were required to provide a performance bank guarantee (initially to a maximum of INR 220 crores) and a financial bank guarantee (maximum of INR 44 crores) separate for each service and each service area before signing the License Agreement.[15] The Bank Guarantee requirements are now hugely reduced (by 80%) against the license fees and similar levies. The amendments to this in the License Agreements have come into effect from October 6, 2021.[16]

The interest, penalty and interest on penalty formed a significant chunk of the dues which were crystallised by the Supreme Court. With effect from October 1, 2021, delayed payments of license fee/Spectrum Usage Charge attract interest rate of SBI’s Marginal Cost of fund-based Lending Rate (MCLR) (plus 2% instead of MCLR plus 4%; interest compounded annually instead of monthly). The concepts of penalty, and interest on penalty have also been done away with.[17]

As an incentive for new players to enter the market, the tenure of spectrum after the spectrum auctions has been increased from 20 to 30 years. The Spectrum Usage Charges will also not be required to be paid for future spectrum auctions.[18] There was also a requirement to pay additional Spectrum Usage Charges of 0.5% of AGR where there was spectrum sharing. This requirement has also been done away with vide the reforms. To top it off, the Government of India has allowed 100% Foreign Direct Investment (“FDI”) under automatic route in the Telecom Sector.[19]

With respect to the pending dues (crystallised by the Supreme Court), the Government has introduced a moratorium/deferment of up to four years in their annual payment by protecting the Net Present Value (“NPV”) of the due amounts. There will also be a moratorium/deferment on due payments of spectrum purchased in past auctions (excluding the auction of 2021) for up to four years with NPV protected at the interest rate stipulated in the respective auctions.

It is also significant to note that the TSPs would have the option to pay the interest amount, arising due to the deferment of payment by way of equity. The Government would have the opportunity to convert the due amount pertaining to the said deferred payment by way of equity at the end of the moratorium/deferment period. The guidelines for the moratorium were published on October 13, 2021.[20]

  1. Reforms for the customer

The procedural reforms are made with the objective of promoting the ease of doing business. Spectrum auctions would be held in the last quarter of every financial year.

The TSPs will be able to import telecom related equipments with much more ease as the cumbersome requirement of licenses under the 1953 Customs Notification for wireless equipment has been done away with and replaced with a mere self-declaration to the customs authority along with Equipment Type Approval certificate.[21]

From a customer standpoint, an app-based Self-Know Your Customers (KYC) has been permitted. The E-KYC rate has been reduced to Re. 1 after the TSPs had urged the Central Government in October 2020, to scrap the Aadhaar based E-KYC charges of Rs.41. Further, if a customer shifts from prepaid to post-paid services, and vice-versa, they will not be required to submit a fresh KYC.[22] The paper Customer Application Forms (“CAFs”) has also been replaced with digital storage of data. The TSPs will not be required to store such CAFs in warehouses nor would they be required to carry out warehouse audit.[23]

As per the existing procedure of Standing Advisory Committee on radio Frequency Allocation (“SACFA”), all antenna towers/masts located beyond 7 kms from the nearest airport and having up to 40 meters height, above the Above Mean Sea Level (AMSL) of the Airport Reference Point are cleared in automated processing system. SACFA clearance for telecom towers has been eased as the DoT will now accept data on a portal based on self-declaration.[24]

  1. OTSC Charges

In 2012, a decision was taken by the DoT to impose One Time Spectrum Charges (“OTSC”) for GSM spectrum held by operators beyond 6.2 MHz, retrospectively from July 2008 to December 2012 and OTSC for spectrum held beyond 4.4 MHz, prospectively from January 2013.

The TDSAT ruled that the Government can charge the OTSC only prospectively, from 2013, and that too only on administratively allocated airwaves beyond 6.2 Mhz.[25] The decision of the TDSAT was promptly challenged before the Supreme Court by the DoT.[26] During the pendency of the appeal, the Government filed an affidavit stating therein that the amount involved, which is the subject-matter of adjudication, would be an imposition of financial liability on various TSPs to the tune of approximately INR 40,000/- crores. It was further stated that in view of the subsequent developments, the Central Government is reviewing and/or reconsidering the decision to proceed with the present proceedings of appeal.[27] A decision in this regard is expected soon.

III.         Conclusion

The reforms are expected to not only benefit the TSPs, but are also a major relief to the various banks having substantial exposure to the Telecom sector. Further, the procedural reforms as shown above are quite beneficial to the customers/ end-users of the telecom services.

With the definition of AGR itself explicitly changed by excluding non-telecom revenues and other heads of income which controversially were held to form part of the definition of AGR, the TSPs have actually succeeded in getting what they wanted, albeit belatedly.

Assuming that the moratorium would be made applicable to the bank guarantees which are in possession of the DoT, the banks may also get a breather during the moratorium. Further, if the Supreme Court upholds the NCLAT decision of treating DoT as an operational creditor[28], then the rights of the financial creditors/banks as lenders would supersede the rights of the DoT against TSPs that may go into insolvency or are already under insolvency. The License has indeed been amended to the extent that the performance bank guarantees and the financial bank guarantees of existing licensees have been revised to 20% of the amount held by the DoT. However, it is pertinent to note that this condition does not apply to the TSPs who are currently under insolvency. As per the IBC, a moratorium would not stop a creditor from invoking the financial bank guarantee.[29]

It is essential to note that the dues are neither discounted nor reduced, and the balance sheet of the companies would continue to reflect the amounts due. The moratorium/deferment provided is only for a period of four years. It is yet to be seen how the four-year moratorium will play along with the 10 years’ time granted to the TSPs by the Supreme Court vide its September 2020 judgment with the specific direction that the TSPs will have to make payment in yearly instalments up to March 31 2031, payable on March 31. The moratorium period is granted with the expectation that it will help the sector revive itself and the government will be able to recover the pending dues in its entirety.

One way to look at this entire issue would be to consider it to be a simpliciter contractual dispute. Continuing in the same vein, if the License is a contract, then it is interesting to note a clause in the very same agreement, which allows the Licensor/ Government to modify at any time the terms and conditions if it is in its opinion necessary to do so in public interest. As has been held by the Supreme Court itself in Godhra Electricity Co. Ltd. & Anr. v. State of Gujarat and Anr.[30], there is no good reason why the courts should not give weight to the further expressions by the parties, in view of the fact that they still have the same freedom of contract as they originally had. In such a background, a possible suggestion could be that implementing specific clauses of the License Agreement should not be treated as a breach of the Supreme Court directions.

The intent to radically boost the telecom sector by the Government is further clear from the affidavit filed by the Government before the Supreme Court with respect to the OTSCs. The reforms would incentivise more companies to enter the sector and expand competition.

In light of the above recent developments in the sector, one can certainly be optimistic about the future of the sector.

[1] Cabinet approves major Reforms in Telecom Sector -Telecom Reforms to boost employment, growth, competition and consumer interests – Liquidity needs of Telecom Service Providers addressed  – Press Release dated September 15, 2021, available at https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1755086
[2] (2020) 3 SCC 525
[3] (2020) 9 SCC 748
[4] Union of India v. M/s Reliance Communication Ltd and etc. ; Civil Appeal No(s). 6548-6549/2019
[5] Association of Unified Telecom Service Providers of India v. Union of India, TDSAT Judgment dated July 7, 2006 in Petition No. 7 of 2003
[6] Association of Unified Telecom Service Providers of India v. Union of India, TDSAT Judgment dated August 30, 2007 in Petition No. 7 of 2003
[7] (2011) 10 SCC 543
[8] Association of Unified Telecom Service Providers of India v. Union of India, TDSAT Judgment dated April 24, 2015 in Petition No. 7 of 2003
[9] Ibid at Pg. 56
[10] Order dated October 24, 2019, i.e., same day as the AUSP Judgment
[11] Supra 3
[12] Supra 1
[13] DoT Circular dated October 25, 2021, bearing number 20-271/2010 AS-I (Vol.V)– “Amendment in Unified License Agreement for Adjusted Grss Revenue (“AGR”) –regarding
[14] Ibid Clause 3.1A
[15] The BG terms differs for each licenses
[16] DoT Circulars dated October 6, 2021, bearing No.20-271/2010 AS-I (Vol.IV) regarding Amendment in UAS License for rationalization of Bank Guarantees, and Amendment in Unified License Agreement for rationalization of Bank Guarantees
[17] DoT Circulars dated October 1, 2021, bearing No.20-271/2010 AS-I (Vol.IV) regarding Amendment in Unified Access Service License (UASL) for change in interest rate, penalty and interest on penalty on delayed payment of License Fee on any other dues – regarding
[18] Office Memorandum dated October 8, 2021, bearing number L-14047/08/2021-NT
[19] Department for Promotion of Industry and Internal Trade – Press Note No. 4 (2021 Series) dated October 6, 2021-  Review of Foreign Direct Investment (FDI) Policy on Telecom Sector
[20] Office Memorandum dated October 13, 2021, bearing F.No.3/2/2021-PPU, by the Department of Economic Affairs (IPP) Division, Ministry of Finance
[21] Letter dated September 23, 2019, bearing File No. R-11018/06/2017-PP regarding Clarification i.r.t. import of license-free wireless equipment-re
[22] Notifications dated September 21, 2021 – File No. 800-12/2021-AS.II – Self-KYC (S-KYC) as an alternate process for issuing of new mobile connections to Local and Outstation category customers –and Use of Aadhar  based e-KYC service of Unique Identification Authority of India (UIDAI) as an alternate process for issuing mobile connections to Individual customers including Outstation customers and Bulk connection. [23] Guidelines dated October 11, 2021 bearing File No : 800-2U2015-AS. II-Part(z) – Guidelines for Telecom Service Providers (TSPs) for digitization of Paper CAFs (including associated documents)
[24] Office Memorandum bearing number K-19013/13/2005-CFA on Simplification of SACFA clearance process for installing towers
[25] Vodafone Idea Ltd. v. Union of India; T.P. No. 19/2013 – Judgment dated July 4, 2019
[26] C.A. No. 3686 of 2020
[27] Supra 4
[28] Union of India v. Vijaykumar V. Iyer; 2021 SCC OnLine NCLT 303
[29] Section 14 (3)(b) of the IBC. Also see NCLAT judgment dated February 26, 2021, in Bharat Aluminum Co. Ltd. v. M/s J.P. Engineers Pvt. Ltd.; Company Appeal (AT)(INS) No.759/ 2020.
[30] (1975) 1 SCC 199, para. 11

Vijayendra Pratap Singh, Senior Partner
Atul Menon, Senior Associate





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