It was always clear the government was simply arm-twisting telcos when, in return for its nod for mergers like that between Bharti Airtel and Telenor or Vodafone and Idea, it insisted that these telcos pay up their licence fee/spectrum charge dues as also the one-time spectrum charges for ‘free’ spectrum allocated to them.
It was always clear the government was simply arm-twisting telcos when, in return for its nod for mergers like that between Bharti Airtel and Telenor or Vodafone and Idea, it insisted that these telcos pay up their licence fee/spectrum charge dues as also the one-time spectrum charges for ‘free’ spectrum allocated to them. In the case of the licence/spectrum fees, the issue centres around what ‘revenue’ is, and the telcos refused to pay licence/spectrum charges for, say, revenue got from the sales of mobile instruments. The dispute over the definition has been contested in various courts for around 15 years already and is now in the Supreme Court.
One-time spectrum charge (OTSC) is equally contentious, and is based on the argument that while the Rs 1,651 crore telcos paid for guaranteed only 4.4 MHz of spectrum, telcos had to pay for any extra spectrum they got beyond that. While the government began examining this possibility in July 2008, it took a final decision in December 2012, and telcos were asked to pay around Rs 24,000 crore as OTSC. There were two problems with the demand. One, it was being applied retrospectively since the existing telecom policy didn’t envisage an OTSC. Two, the government was, in any case, charging the telcos for the extra spectrum by way of higher licence/spectrum fees. At that point, when a telco moved from 4.4 MHz to 6.2 MHz, the spectrum charge went up from 2% of revenues to 3%, and to 4% when it moved to 8 MHz.
Surely the extra money the government got by way of annual licence/spectrum fees were in lieu of a one-time spectrum payment? Yet, in the Vodafone-Idea merger, apart from the Rs 13,000-odd crore claimed as licence/spectrum dues, the government asked the duo to pay Rs 5,700-crore of OTSC. The good news here is that, apart from the TDSAT which ruled against the government asking Bharti Telenor to clear Rs 1,500-odd crore of OTSC before the merger, even the Supreme Court has ratified this—this also means a big hurdle in the way of the Vodafone-Idea merger has been removed.
The government also tried to play the heavy in the tax case with Vodafone. After the NDA wasn’t able to strike off the UPA’s retrospective tax legislation, the best solution was letting courts—including international arbitration ones—decide on the matter. Despite this promise, however, the government tried to drag out the Vodafone arbitration, and when Vodafone decided to file for a second arbitration under the India-UK investment treaty, the government said the telco was indulging in treaty-shopping since it was already fighting the case under the Indo-Netherlands investment treaty, and challenged this in the Delhi High Court.
Instead of getting into the merits of the treaty-shopping argument, the court said arbitration disputes were fundamentally different from commercial disputes as the cause of action was based on government assurances and guarantees—in which case, the government was free to bring up its arguments before the arbitration court. Another case of the courts taking a positive view.