Bharti Airtel, in a statement, said, “This decision has come at a time when the sector is facing severe financial stress and may further weaken the viability of the sector as a whole.” Bharti Airtel, in a statement, said, “This decision has come at a time when the sector is facing severe financial stress and may further weaken the viability of the sector as a whole.”

Telecom companies, already reeling under intense tariff war and indebtedness, were dealt a major blow Thursday as the Supreme Court upheld the Department of Telecommunications’ (DoT) definition of adjusted gross revenue (AGR) — a long standing dispute between the Centre and the sector players. Telecom firms will be required to include non-core income for calculation of AGR, requiring them to pay the government as much as Rs 92,641 crore extra, including disputed demand, interest and penalty.

Telecom players, including Bharti Airtel and Vodafone Idea, said the court order could have damaging implications for the sector, weakening its viability as a whole.

“Clearly this judgment has significantly damaging implications for India’s telecom industry, which is already reeling under huge financial stress and is left with only four operators. Significant investment of several billion dollars has been made in creating world class networks. Today’s order has huge impact on two private operators while most of the other impacted operators have exited the sector. We urgently request that the government engage on this matter in order to find ways to mitigate the financial stress for the industry,” Vodafone Idea said in a statement.

It further said the matter has already been through several rounds of litigation, which have been largely in favour of the operators until now. “We will study the ruling as soon as it is available, along with our legal advisers, to determine next steps. If there are technical or procedural grounds for doing so, this could include a Review Application,” it added.

Expressing disappointment on the order, Bharti Airtel, in a statement, said, “This decision has come at a time when the sector is facing severe financial stress and may further weaken the viability of the sector as a whole. Of the 15 old operators impacted by the order, only two private sector operators remain in service today. The Government must review the impact of this decision and find suitable ways to mitigate the financial burden on the already stressed industry.”

Vodafone and Idea Cellular have merged, while Reliance Communications, Aircel, Telenor India, Videocon Communications, and Loop Telecom have closed business.

Shares of Vodafone Idea crashed 26.5 per cent to end at its lowest level at Rs 4.10 at the NSE. Shares of Bharti Airtel fell over 13 per cent intraday, before closing 3 per cent higher at Rs 371. Any further deterioration in financial conditions of telecom companies could also adversely impact banks which have lent over Rs 1 lakh crore to the sector.

Shares of most banks also fell up to 6 per cent reacting to the Supreme Court order, with State Bank of India falling over 10 per cent intraday.

Telecom operators are required to pay licence fee and spectrum charges in the form of ‘revenue share’ to the Centre. The revenue amount used to calculate this revenue share is termed as the AGR.

According to the DoT, the calculations should incorporate all revenues earned by a telecom company – including from non-telecom sources such as deposit interests and sale of assets. The companies, however, have been of the view that AGR should comprise the revenues generated from telecom services only and non-telecom revenues should be kept out of it.

The slugfest between DoT and the telecom companies has been on since 2005, when the Cellular Operators Association of India — the lobby group for players such as Airtel and Vodafone Idea — challenged the DoT’s definition for AGR calculation.

Subsequently, in 2015, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) ruled that the AGR included all receipts, except capital receipts and revenue from non-core sources such as rent, profit on the sale of fixed assets, dividend, interest and miscellaneous income, etc.

The government, meanwhile, continued to raise the issue of under-reporting of revenues. The Comptroller and Auditor General of India (CAG), in a recent report, blamed the telecom firms for “understating revenues” to the tune of Rs 61,064.5 crore.

The latest petition by the DoT was being heard in the Supreme Court, wherein the DoT sought interest, penalty and interest on penalty on the outstanding amount. These amounted to Rs 92,641 crore (disputed actual demand is Rs 23,189 crore, levy of Interest of Rs 41,650 crore, penalty of Rs 10,923 crore and interest on penalty of Rs16,878 crore)

All the appeals against the TDSAT order dated April 23, 2015, alongside multiple appeals and verdicts by the DoT and the industry, were heard before the apex court Bench of Justice Arun Mishra, Justice S Abdul and Justice MR Shah.

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