Cable companies feel the pain of Supreme Court’s AGR judgment

After oil producers, metro rail operators, pipeline operators, power distributors and railways, it is the turn of cable operators to feel the impact of the AGR judgment of a Supreme Court bench headed by Justice Arun Mishra last year.

In October last year, the bench had ruled that any company that took a license from India’s Department of Telecom must pay a chunk of all its revenue to the department, and not just the revenue from the licensed activity.

In other words, if the license was to provide voice calling services, then revenue from other activities too should be shared with the DoT, the court ruled.

The judgment overturned the traditional understanding of the subject, under which license-holders would pay DoT a share of the revenue generated from the activities that were being carried out under the license.

Hence, Delhi Metro Corporation, for example, was not giving DoT a share of its metro rail revenue. Similarly, petroleum producing company Oil India, which took a telecom license to lay long-distance cables next to its pipelines, was paying 8% of the revenue generated by that activity, and not 8% of the revenue obtained from digging out crude oil from the ground.

It is believed that the single judgment by the Supreme Court heaped liabilities to the tune of nearly Rs 3 lakh cr (Rs 3 trillion or about $40 billion) on various Indian companies.

This Supreme Court judgment — if complied with fully — is likely to result in the shut-down or debilitation of several large companies, including Vodafone Idea and pipeline operator GAIL India.

CABLE OPERATORS

However, so far, it was expected that this affected only those companies that took telecom licenses — such as those for cellular telephony and long distance calling — from the DoT.

However, according to the latest indications, the Supreme Court judgment will also affect companies that took any license from the DoT that contains such a revenue share clause.

Such licenses include the ISP or internet service provider license as well.

This has the potential to a larger number of companies. Unlike telecom licenses, which are held by a few dozens companies in India, ISP licenses have been taken by hundreds of companies. For most of these companies, particularly cable operators, their ISP business is not their major source of revenue.

Until now, these cable operators have been paying a share of their Internet/broadband revenues only to the DoT under the ISP license conditions.

However, after the Supreme Court judgment, they may have to to pay a share of their cable TV revenues as well — right from the day they first obtained the ISP license.

GTPL Hathway, one of India’s largest cable TV service providers, confirmed that it received such a demand notice from the Department of Telecom in February.

Via a letter dated Feb 15, the DoT raised a demand of s 229 cr from GTPL Hathway. This number was arrived at by including the revenue from cable TV services in DoT’s calculations as per the Supreme Court order, even though, in practical terms, cable TV services are not covered by DoT’s license.

In addition, DoT has also demanded penalties, late fees and interest to the tune of Rs 707 cr from GTPL Hathway, taking the final demand to Rs 936 cr.

Two companies from whom such demands have been made — Bharti Airtel and Vodafone Idea — have already paid around Rs 17,000 cr under such demand notices. They companies were forced to pay after the bench headed by Justice Arun Mishra threatened to take action against both DoT and company officials.

However, said GTPL Hathway, it has not made any payment to DoT and is not setting any money apart for future payments either.

The company said, instead, it has made a presentation in front of the DoT, pointing out that the DoT revenue share is for broadband revenue, and cable TV revenue is not part of its broadband business or license.

“We have given a presentation to the DoT and said that this demand does not hold good on the ground that cable business revenue does not come under [GTPL broadband],” GTPL officials said.

“Based on the opinion of legal experts, the company is confident that we have a strong legal ground to defend itself and will take appropriate legal remedy.”

“Considering the company’s assessment of this demand, uncertainty relating to the outcome of the company’s representation to the DOT and based on the opinion of legal expert, the company is confident that it has good grounds on merit to defend itself in the above matter. Accordingly, the Company is of the view that no provision is necessary in respect of the aforesaid matter in the financial results,” the company’s auditors noted.

In 2015, GTPL Hathway created a new subsidiary and transferred the DoT license to the new subsidiary. Because of this, DoT has not demanded a share of the cable TV revenue from 2016 onwards.

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