Spectrum usage charge: Govt caps mobile phone frequency rates at 5% of revenue

Written by PTI | New Delhi | Updated: Jan 27 2014, 19:18pm hrs
Telecom towerThe government leaves unchanged annual spectrum fee of 1% of revenue for 4G spectrum holders.
The Empowered Group of Ministers (EGoM) today approved a spectrum usage charge (SUC) of 5 per cent of the annual gross revenue on all the new airwaves acquired in auction.

Existing telecom operators will have to pay the weighted average of their existing SUC, and 5 per cent if they acquire new spectrum.

"For all new spectrum, which will be sold, it will be 5 per cent but it will be charged at weighted average. There is no protection of revenue. In this process if government losses some revenue, doesn't matter. Ultimately consumers have to be benefited," Telecom Minister Kapil Sibal told reporters here.

He added the decision will go to Cabinet for final approval.

The SUC for broadband wireless access (BWA) spectrum will continue to remain at 1 per cent as the government has not amended the existing contractual obligation.

However, they will have to pay a SUC of 5 per cent for the new airwaves they acquire. These companies have to report separately the revenue earned from BWA airwaves and new spectrum.

"Ultimately it is consumers who need to benefit. Big players (charges) will come down. It will not affect new players," Sibal said.

Government, at present, gets pan India average SUC of 4.8 per cent on airwaves allocated till date which has now been fixed at 5 per cent. Hence, there will be no adverse impact on existing revenue, official sources said.

The Telecom Commission has recommended three options to the EGoM headed by Finance Minister P. Chidambaram - a levy of 3 per cent with weighted average, 5 per cent with weighted average and continuation of the existing regime.

GSM firms such as Bharti Airtel, Vodafone and Idea Cellular have locked horns with Mukesh Ambani-led Reliance Jio Infocomm following the Trai's recommendation of a uniform SUC.

The charge is levied annually by the government as a percentage of revenue earned from telecom services.

It currently ranges from 3 to 8 per cent for mobile operators, while for firms with Broadband Wireless Access (BWA) spectrum such as those of Reliance Jio Infocomm Ltd and Tikona, the fee is 1 per cent.

"Rationalisation of issue, Nobody should be a loser," Sibal said, adding,"More investment is sector means more service and lower tariffs for consumers."

Major telecom operators including Airtel and Vodafone had written to the Department of Telecom to take a call on SUC before auction starts on February 3.

Govt cuts telecom spectrum fee for big carriers to spur bids


Telecommunication companies buying airwaves in an Indian auction next month will pay 5 percent of their revenue as an annual fee, a ministerial panel decided on Monday, a move that means lower payments for bigger carriers Bharti Airtel and the Indian unit of Vodafone .

The move scraps the 3-8 percent fee range the country currently levies in an effort to coax previously reluctant operators into taking part in India's third attempt at auctioning two frequency bands for billions of dollars.

The new rate is higher than the 3 percent flat rate suggested by an independent sector regulator, which had proposed abolishing the current levy of five different rates depending on the quantum of spectrum held by a carrier.

The government may lose some revenue it collects as annual fees due to the new rate, Telecommunications Minister Kapil Sibal said after the meeting of the ministerial group, but expects it to help companies buy more spectrum in the auction starting Feb. 3.

"No big losers, no big winners," Sibal said. "A successful auction means greater investment in the sector," he said, explaining the rationale for the new rate.

After two previous attempts to pull off the sale were boycotted by major mobile phone operators that complained minimum bid prices were too high, India cut sharply the floor bid price for the February auction, helping it lure interest from eight carriers including the market leaders.

That still did not guarantee a successful sale as carriers including Bharti and Vodafone demanded a cut in the recurring annual fee they pay on the top of the winning bid price for using airwaves. India expects to raise at least $1.8 billion this year from the spectrum auction.

"I think it's a mixed blessing. We are pleased that it's capped at 5 percent," said Rajan Mathews, director general at the Cellular Operators' Association of India after the ministerial panel's decision on Monday.

Bharti and Vodafone must buy spectrum in the February auction to renew their permits in some key cities and are expected to benefit from the 5 percent cap because they currently pay around 6 percent of their revenue in annual fees in those markets.

But smaller carriers that pay less than 5 percent currently, will tend to move towards the 5 percent rate gradually if they buy more spectrum from the auction, Mathews said.

The total spectrum fee for carriers' existing spectrum and new spectrum from the February auction will be calculated based on a weighted average of the old and new fee, Sibal said.

Sibal said companies like Reliance Industries Ltd, which bought 4G spectrum in a 2010 auction, will continue to pay 1 percent of their revenue as annual fee for that spectrum. Reliance, which is also bidding in the February auction, had opposed any change in the fee for 4G spectrum.