The Supreme Court ruling on Thursday upholding the Department of Telecommunication’s (DoT) definition of adjusted gross revenue (AGR) is credit-negative for the telecom operators. This could add significantly to the already gargantuan liability of telecom operators towards the Government of India.

A three-judge bench of the court said telecom operators have to pay licence fee and spectrum usage charges as a percentage of the newly accepted definition of the AGR.

Earlier, operators were only considering revenue from core telecom operations while leaving out items such as dividend, interest, capital gains on account of profit on sale of assets and securities, and gains from foreign exchange fluctuations, amongst others.

While the judgement has made clear the definition of AGR, clarity is awaited regarding the exact liability of the individual operators and the payment terms. As we understand, operators and DoT will have to mutually work out the liabilities under the new definition of the AGR.

Moreover, the telecom operators are also contemplating various recourse options, including filing a review petition.

The AGR dispute dates back to 2005, and the claim amount has ballooned because of interest and penalties levied since that date.

Crisil will continue to monitor the developments on this and take appropriate action.

Moreover, the funding mix of this liability in terms of debt and equity will also be critical to the credit profiles of operators.