Scatmag.com

November 2019

TDSAT: NO AGR ON PURE INTERNET SERVICES


In its 18 October 2019 judgement with far reachiong consequences, the TDSAT ruled that there will be no payment of ISP license fee on revenue from 'Pure Internet Services.'

Pure Internet refers to providing both Internet access and content, but not voice services.


THE PETITIONS

The petitions were filed at the TDSAT by & on behalf of Internet Service Providers (ISP), on 2 grounds:

  1. DoT has permitted old ISP licensees to enjoy no license fee on revenue from pure internet s e r v i c e s whereas new ISP licensees under the Unified License(UL) regime, are required to pay license fee for similar internet services. This violates the principle of providing a level playing field for all ISPs.
  2. DoT has not followed the s t a t u t o r y procedure laid down under Section 11 of the TRAI Act, (which requires prior advice from TRAI) while laying down terms relating to Gross Revenue(GR)/Adjusted Gross Revenue(AGR) for UL-ISP license.



LICENSE FEE

An ISP license requires the holder to pay a recurring license fee which is a fraction of the income earned by the ISP. An ISP must pay an annual license fee @ 8% of Adjusted Gross Revenue (AGR). Hence it is very important to clearly define how the AGR is calculated.

Royalty for the use of spectrum for point to point links and other access links must be paid separately (from the license fee) as per levies by the Wireless Planning & Coordination Wing.


Pure Internet Services Means Any Method / Device / Technology To Provide Access To Internet And All Content, Including Web-Hosting, Web-Colocation.



PURE INTERNET

As a general explanation - 'Pure Internet' service refers to providing both Internet access and content, but not voice services. However, a rigorous definition of AGR and Pure Internet is built into the DoT's license document:


GROSS REVENUE

The Gross Revenue shall be inclusive of revenue from Internet access service, revenue from internet contents, revenue from Internet Telephony service, revenue from activation charges, revenue from sale, lease or renting of bandwidth, links, R&G cases, Turnkey projects etc., revenue from IPTV service, late fees, sale proceeds of terminal equipments, revenue on account of interest, dividend, value added services, supplementary services, interconnection charges, roaming charges, revenue from permissible sharing of infrastructure and any other miscellaneous revenue, without any set-off for related item of expense etc.


ADJUSTED GROSS REVENUE

For the purpose of arriving at the "Adjusted Gross Revenue (AGR)" the following shall be excluded from the Gross Revenue to arrive at the AGR:

  • Charges from pure Internet service, activation charges from pure internet subscribers. Pure Internet Services shall mean any method / device / technology to provide access to Internet unless explicitly prohibited and all content available including web-hosting, web-colocation which is available on internet without access restriction.
  • Service Tax on provision of service and Sales Tax actually paid to the Government if gross revenue had included as component of Sales Tax and Service Tax.
  • Roaming revenue actually passed on to other eligible/ entitled telecom service provider.


Internet Services Were Launched In India On 15 Aug 1995 By VSNL


BACKGROUND

Internet Services were launched in India on 15.08.1995 by Videsh Sanchar Nigam Ltd. (VSNL), a Public Sector Undertaking of the Department of Telecommunications (DoT). To achieve widespread use of the internet, the government announced its ISP Policy in November, 1998. ISP licenses were issued on non-exclusive basis from 6.11.1998 with waiver of license fee up to 31.10.2003 and thereafter with a token fee of ₹ l per annum for licenses issued prior to 01.11.2003. Limited Internet Telephony Services were also allowed w.e.f. 01.04.2002 by issuing an amended ISP licence.

On 3.3.2006 DoT amended the ISP license and introduced a license fee of 6% of AGR w.e.f. 1st Jan 2006. The AGR included revenue from Internet Telephony but excluded revenues from 'Pure Internet Services'.

On 25.01.2010 DoT issued an amendment to its Guidelines, which required ISPs having licenses prior to 24.08.2007 to compulsorily migrate to 6% AGR. Minimum AGRs for Category A & B were specified.

The definition of AGR remained unchanged i.e. no AGR on pure internet services.

In a circular dated 29.06.2012 DoT levied a uniform 8% AGR on all ISPs & ISP-IT (ISPs providing Internet Telephony).

The circular also stated that the license fee shall 'PROVISIONALLY' include all types of revenue from internet services, allowing only those deductions available for passthrough charges and taxes/levies as in the case of Access Services, without any setoff for expenses. It further stated that revenues from (pure) internet services will also be included in the definition of applicable AGR provisionally for ISP-IT category, till Government takes the final decision.

Ther TDSAT in its 12.10.2012 judgement ruled that ISPs could not be asked to 'PROVISIONALLY' pay AGR on pure internet services.


NEW REGIME

DoT introduced its Unified License (UL) Regime w.e.f. 19.08.2013, requiring license fee even on pure internet service in respect of new UL ISP License.

This was done without seeking a prior recommendation from TRAI.



NEW LICENSES PAY MORE

Petitioner No.3, - Tata Communications Ltd.(TCL) - an old ISP had its license expire on 24.01.2014. It objected that under the new Unified License Guidelines dated 19.08.2013, it was to pay a licenses fee of 8% AGR even on pure internet services, which were not paid by ISPs holding licenses under the old license regime.

Tata Communications objected to this non level playing field.


THE TDSAT JUDGEMENT

The TDSAT, in a well reasoned, detailed judgement upheld both counts of the petition. It rejected the DoT's circulars and levies.

  • It has restrained DoT from including revenue from Pure Internet Services to compute the AGR.
  • TDSAT has quashed DoT's circulars that demand 8% AGR on pure internet services, under the Unified License.

The judgement is a major development. Based on this TDSAT order, most small ISPs currently offer only 'Pure Internet' hence they will have to pay zero AGR on their income from distribution of internet connectivity.

It remains to be seen if the DoT will appeal this order in a High Court. We will keep our readers informed. n