Amendments to the UL VNO Agreement

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Amendments to the UL VNO Agreement

To provide relaxation to the telecom companies, the Government of India, via the Department of Telecommunication, introduced changes to the UL VNO agreement via a notification on 25th March 2021.

What is the purpose of these amendments to the UL VNO agreement?

Ever since the government of India put forth its demand for license fees from the telecom companies back in 2005, it has entered into several disagreements in the telecom sector. The core of this disagreement is the definition of Adjusted Gross revenue.

The traditional definition of Gross revenue includes all the revenue generated by telecom companies by providing telecom services and revenue generated by the following:

1. Performing operations other than telecom activities.
2. Activities under the license issued by the Ministry of Information and Broadcasting
3. Receipts of USO fund
4. Income from dividends
5. Income from interest
6. Capital gains on accounts
7. Gains from foreign exchange fluctuation
8. Insurance claims
9. Income from property
10. Income generated from the recovery of bad debt
11. Excess provisions written back.

To calculate the adjusted gross revenue, the Department of Telecommunication subtracted the following from the gross revenue:

1. Access Charges paid to the supplier
2. Charges paid to retain the telecom resources that licensee needs to provide telecom services
3. GST paid to the government if the GST is part of the Gross revenue.

Where was the problem with this definition?

The telecom companies deemed it unfair that the government is also considering the revenue generated from activities other than telecom services to calculate the gross revenue. As a result of this disagreement, many telecom companies refused to pay their license fee. The situation escalated in 2020 when the government suddenly asked for all the license fees to be paid in one go. As a result, many large companies had insurmountable license fee dues – dubbed as AGR dues in some newspapers.

As a result, the telecom industry of India came under threat of obscurity. It wasn’t until 2021 when a resolution was forced between the two parties – telecom companies and the government – by the Court.

It resulted in the government finally understanding the plight of Telecom companies. Therefore, it came with the changes to all UL VNO agreements

What are those amendments to the UL VNO Agreements?

While the current definition of Gross revenue hasn’t changed, a new term has emerged known as Applicable Gross Revenue. As per the definition, the Applicable Gross Revenue shall be  equal to Gross Revenue of the licensee as reduced by the items listed below:

1. Performing operations other than telecom activities.
2. Activities under the license issued by the Ministry of Information and Broadcasting
3. Receipts of USO fund
4. Income from dividends
5. Income from interest
6. Capital gains on accounts
7. Gains from foreign exchange fluctuation
8. Insurance claims
9. Income from property
10. Income generated from the recovery of bad debt
11. Excess provisions written back.

This “reduced” gross revenue now becomes the basis of Adjusted Gross revenue, which is calculated as below:

Adjusted Gross Revenue = Applicable Gross Revenue – the following:

1. Access Charges paid to the supplier
2. Charges paid to retain the telecom resources that licensee needs to provide telecom services
3. GST paid to the government if the GST is part of the Gross revenue.

What does that mean?

The addition of an Applicable Gross Revenue and making it the basis to calculate the AGR means that now, the license fee that licensee has to pay will be based on the revenue they generate by providing only their telecom services.

 Interested in keeping up with the news related to AGR dues, stay in touch with our knowledge base.

For assistance in procuring telecom licenses and registrations, contact Registrationwala. 

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