No point buying spectrum if usage charge not flat

Written by Jayati Ghose | New Delhi | Updated: Dec 21 2013, 10:03am hrs
Mobile operators on Friday told the Department of Telecom (DoT) that in the absence of a flat spectrum usage charge (SUC) the industry does not have any incentive to buy additional radiowaves either through auction or sharing process.

Mobile service providers also raised questions on the validity of a three-year lock-in (from sale of equity) for promoters of existing operators and the ranking system of allocating contiguous spectrum, during a three-hour spectrum auction pre-bid conference between the industry and the telecom department.

DoT is expected to provide clarifications to industry's queries on December 28, 2013.

The government is set to sell 2G spectrum starting January 23 and expects to earn Rs 40,000 crore from the auction. It is also in the process of formulating spectrum sharing rules, which are expected to boost consolidation in the sector.

There will be a serious detrimental impact of the slab-based spectrum usage charge policy on the auctions, said TV Ramachandran, resident director, Vodafone India, at the pre-bid conference.

Expressing similar sentiments, Jyoti Pawar from Bharti Airtel's regulatory affairs team said that the current system of differential increases payout on existing spectrum and does not provide any incentives to participate in the upcoming auctions.

For the January auction, the government plans to stick to a slab-based spectrum usage charge, which is a percentage of an operators' adjusted gross revenue paid annually to the DoT. Currently, spectrum usage charges are 3-8%. Charges go up as the spectrum holding increases.

Telecom regulator Trai had, however, proposed a uniform rate of 3% for all auctioned spectrum (and all technologies, including 2G, 3G and BWA), and a maximum charge of 5% for non-auctioned spectrum.

The final decision of SUC will be taken together by the department of revenue and the DoT.

Rajan Mathews of Cellular Operators Association of India, the GSM service providers' lobby group, said that a differential SUC regime will also hinder the introduction and taking up of spectrum trading and


Operators also wanted to be assured of being allocated contiguous spectrum in a particular block or being granted an option to withdraw from buying that block.

Existing operators -- Bharti Airtel and Vodafone -- whose 900-MHz spectrum in Delhi and Mumbai will come up for renewal in 2014 want the "new entrant" definition to be modified. Currently, the notice inviting application (NIA) for the auctions state that "bidders whose licenses are due for expiry in 2014 and their spectrum put to auction will be treated as new entrants". The rules also state that new entrants need to buy a minimum 5 MHz both in the 900-MHz and 1,800-MHz band. Operators said this would force them to buy "unnecessary" additional spectrum.