Vodafone Idea | Centre approves $2-billion debt-to-equity plan

What’s in today’s article?

• Why in news?
• What is AGR?
• What is the controversy surrounding the calculation of AGR?
• Legal battle over definition of AGR
• Final Ruling on AGR issue
• What are the steps taken by Government after SC Judgement of 2020 on AGR issue?
• News Summary: Vodafone Idea | Centre approves $2-billion debt-to-equity plan

Why in news?

• The government has approved the conversion of ₹16,133 crore (Approx $ 2 bn) interest dues of Vodafone Idea (Vi) into equity.
  • With this, the govt would become the single largest shareholder in the cash-strapped telecom company.
• The relief for the company comes as part of the reforms package announced by the government in September 2021.
  • The reform package had allowed telecom companies to convert interest on deferred Adjusted Gross Revenue (AGR) owed to the government into equity.

What is AGR?

• 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.

What is the controversy surrounding the calculation of AGR?

• As per Dept of Telecom, the revenue calculations should incorporate all revenues earned by a telecom company.
  • This also includes revenues from non-telecom sources such as deposit interests and sale of assets.
• The companies, however, are of the view that AGR should comprise the revenues generated from telecom services only.
  • Non-telecom revenues should be kept out of it.

Legal battle over definition of AGR

• The telcos and the government were involved in the legal battle over the definition of AGR to include the source of revenues. 
• In October 2019, the top court widened the definition of AGR to include the government’s view.
• The court ordered to include all revenues, except for termination fee and roaming charges, as a part of the AGR.

What is the stand of the Supreme Court on the AGR issue?

• On September 1, 2020, the Supreme Court gave its final ruling on the AGR issue.
• It had directed telecom companies to pay AGR, interest and penalty on non-payment on AGR dues.
• Telecom service providers were asked by the SC to make payments in yearly instalments between April 1, 2021 and March 31, 2031.
  • In case of default on payment, interest and penalty on interest would automatically be payable, and that non-payment would be punishable for contempt of court.

What are the steps taken by Government after SC Judgement of 2020 on AGR issue?

• In September 2021, the Union Cabinet had cleared the telecom reforms package aimed at improving liquidity and ease of doing business.
• Telecom companies were provided with the option of four-year moratorium on spectrum and AGR dues. 
  • This meant that telecom companies could opt to pay the principal, the interest, and all other penalties, after four years, instead of paying it then.
• The government had also given all the telcos a one-time opportunity to convert the interest on this deferred payment into equity at the end of the four-year period.

News Summary: Vodafone Idea | Centre approves $2-billion debt-to-equity plan

• The Union government cleared a long-awaited plan to convert Vodafone Idea’s (Vi) interest dues worth more than Rs 16,000 crore (or $2 billion) into equity.
• With this, the government would pick up around 33% stake in the company to emerge as the largest shareholder.
  • The government will pick up the equity at par value of 10, in line with the Companies Act provisions.
• The move came after promoters Aditya Birla group and Vodafone Plc assured that they will infuse additional capital in the company, apart from kickstarting the exercise to launch the high-speed 5G network.
  • Government wants want India to be a three-player market plus BSNL and ensure healthy competition for consumers.

Image caption: News Summary – Vodafone Idea – Centre approves $2-billion debt-to-equity plan

Q1) What is spectrum for telecom companies?

Spectrum relates to the radio frequencies allocated to the mobile industry and other sectors for communication over the airwaves. 

Q2) What is bandwidth?

Bandwidth is the portion of the spectrum that a given telecommunications system can use. For example, a system that operates on frequencies between 150 and 200 MHz has a bandwidth of 50 megahertz. An important distinction in spectrum technology is the difference between narrowband and broadband.

Source: Govt OKs $2-billion debt-to-equity plan for Vodafone Idea  |  PIB  |  The Hindu  |  Times of India