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why telecom companies increased tariff, what is the reason?

Vodafone Idea and Airtel have announced to increase their tariff from 1 December. Recently Reliance Jio has started taking money for non-Jio calling, citing Interconnect User Charge (IUC). All telecom companies are incurring huge losses due to problems like adjusted gross revenue (AGR).

Vodafone Idea has suffered the biggest loss in Indian corporate history.

Therefore, at present, companies are trying to increase their income to some extent by increasing tariffs. However, the tariff of Jio is still much lower than the rest of the companies, in this case other telecom companies are walking on double-edged sword.

The reason for this is that by increasing tariffs, their customers and customers can break down and go towards live. After the arrival of Jio, the condition of Airtel and Vodafone Idea is very bad, because a large number of their customers have gone towards Jio.

Telecom companies on the verge of ruin

In fact, many of India’s telecom companies are on the verge of ruin due to the Adjusted Gross Revenue (AGR) charged by the government.

Telecom company Vodafone Idea reported the biggest loss of Rs 50,921 crore in the second quarter so far. This is the biggest loss in Indian corporate history. Airtel also incurred a huge loss of Rs 23,045 crore in the July-September, 2019 quarter.

AGR means adjusted gross revenue is collected by the government and due to this, the burden on these companies has increased considerably. The Supreme Court, in its judgment on 24 October 2019, has allowed the telecom department to collect approximately 94000 crore rupees as AGR from telecom companies. However, if you add interest and penalty, then it is Rs 1.3 lakh crore.

Vodafone Idea said in its statement that the increase in tariff has become a compulsion due to the difficulty of the telecom sector. The company has said that all stakeholders agree that there is a problem in the telecom sector.

What happens AGR

Adjusted gross revenue (AGR) is the usage and licensing fees charged by telecom companies by the Department of Telecommunications (DoT) of the Ministry of Communications. It has two parts – spectrum usage charge and licensing fees, which are 3-5% and 8% respectively.

The Department of Telecommunications states that AGR should be calculated on the basis of total revenue or revenue generated by a telecom company, including income from non-telecom sources such as deposit interest and asset sales. On the other hand, telecom companies say that AGR should be calculated only on the basis of income from telecom services. The Supreme Court in its order dated October 24, 2019 upheld the stand of the Department of Telecommunications.

The biggest burden on Airtel and Vodafone-Idea

Airtel will have to pay Rs 43,000 crore under this and Vodafone Idea Rs 40,000 crore. The last date for this is 24 January. The situation of many telecom companies was already bad due to the challenge of Jio in the country and many other reasons, the decision of the Supreme Court has proved to be a big setback for them. Especially the telecom company Vodafone-Idea Limited and Airtel have incurred huge losses due to AGR.

Why loss

The major reason for the loss is that companies have to provision for AGR i.e. a fixed amount has to be set aside. Vodafone Chief Executive (CEO) Nick Reid says that business in India has been very challenging for a long time. He also indicated that if there is no relief from the government, Vodafone can consolidate its business from India.

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