Column: Ringing in uniformity

Written by Sanjeev Aga | Sanjeev Aga | Updated: Jan 15 2014, 08:22am hrs
The furious differences spouted in the media would lead one to believe that the spectrum usage charge (SUC) is a subject more convoluted than rocket science. It is actually as straight as a line, once we invest two minutes to grasp that spectrum is a natural resource with two special characteristics.

First, like sunshine, but unlike an oil field, spectrum is a renewable natural resource. If we extract oil, we deplete the oil field. But if we do not extract it, oil within the oil field stays preserved. Not so with sunshine and spectrum. If you have a productive use for these renewable resources, but do not put them to use, then you have squandered that value irretrievably.

That is what has happened to spectrum in India over the last seven years. Our immature governance institutions and commentators have rejoiced at high spectrum prices extracted by squeezing supply of spectrum, blissfully ignorant of the much larger value squandered by the country every passing day. Encouragingly, the Telecom Regulatory Authority of India (Trai), in recent months, has been advocating productive deployment of available spectrum. But so far it has been

stoutly resisted by the entrenched establishment. But let us leave that aside for now and move on to the second special characteristic of spectrum.

This time the roles are reversed.

Unlike sunshine, but like an oil field, spectrum is a finite resource. There is no charge for sunshine because sunshine is available in almost infinite quantity. But if there are eight competing mobile operators for finite spectrum, then the State must step in to regulate supply, and to charge for the use of the spectrum. Apart from collecting revenue for the State, this charge ensures efficient deployment of spectrum. This, in essence, is the SUC.

The SUC is not a tax. The SUC is a lease charge. The situation is similar to the State leasing eight identical rooms in a State hotel to eight persons. You would assume that the State would charge each exactly the same rupee room tariff. You would be astonished if you were told that the room charges were instead calculated on tables based on the salaries of the individuals. But such is the case! How did this happen

Well, when mobile services started, the SUC was indeed a specific charge. Competing operators in the same service area for the same unit of spectrum paid exactly the same rupee amount. But these fixed amounts turned out to be very large for early stage companies in a formative sector, and were choking sector investments. To address the crisis, the State in 2002 converted the specific SUC to a percentage of revenue, starting from 2% and capped at 4%. This meant that the SUC payments escalated as the capacity to pay escalated, leading to the revival of the sector. Unfortunately, this act of economic statesmanship, some years later, became a lever for the cynical abuse of the system by the high and mighty. Any memory about the real purpose of the SUC was blanked out. Truth be told, there was not even comprehension. That is often the way in India. Bit by bit, the revenue share cap was hiked from 4% to 8%, based on a table of ascending spectrum holdings. Amazingly, in 2007, for certain operators, their total spectrum holdings were disaggregated. It was like a country with two concurrent income tax regimes. Such aberrations in the SUC regime punished the efficient users of spectrum and rewarded the wasteful. The Trai itself has noted the anomalous, discriminatory and non-level-playing field outcomes. The joke is: Show me the Operator and I will show you the SUC Charge. Except that this joke requires a morbid disposition to enjoy.

Justice JS Khehar in the Supreme Court Bench Opinion of December 27, 2012, in response to the Special Reference from the government, noted, Each bit of natural resource expended must bring back a reciprocal consideration. The consideration may be in the nature of earning revenue or may be to best subserve the common good. It may well be an amalgam of the two One set of citizens cannot prosper at the cost of another set of citizens, for that would not be fair or reasonable. Clearly, the SUC regime has neither brought back a reciprocal consideration nor has it been fair and reasonable.

To compound matters, the mobile sector has evolved. From a single technology using a single spectrum band to provide a single service, mobile operators now deploy multiple technologies using multiple spectrum bands to provide multiple services. The resultant absurdities thrown up by the SUC regime have alarmed the Trai. Ideally, the regulator should have advocated a return to a flat rupee charge per unit of spectrum, common to all operators in a particular spectrum band and service area. That is what fidelity to the concept of the SUC demanded. Or, the Trai could have reduced the SUC to about 0.5% of revenue, which is what some other international telecom jurisdictions recover to defray administrative costs. But the Trai has recommended staying put with revenue share at a high level of 3%. This is disappointing but perhaps understandable. With the country grappling with a high fiscal deficit, exchequer considerations become important. Yet, whether 3% or a slightly higher percentage, the Trai has been forthright that any regime other than a common flat percentage revenue share would be flawed. There have been laboured protests from predictable quarters, devoid of any basis. But what is surprising, if media reports are to be believed, is that the Telecom Commission is even debating alternatives among which the common flat percentage rate is just one.

An individual can make a mistake and say sorry. But when a government makes a mistake, it becomes policy. Let us hope the last mistake on the SUC is behind us, and the government will soon announce a flat percentage revenue share, applicable without variation.

The author is a former corporate CEO