Telecom panel leaves decision on spectrum charge to EGoM

Written by fe Bureau | New Delhi | Updated: Jan 26 2014, 10:15am hrs
With Attorney General Goolam E Vahanvati opining that the government cannot raise the spectrum usage charge on BWA spectrum holders from 1% of their adjusted gross revenue to 3%, the Telecom Commission (TC) on Saturday left the tough decision to the empowered group of ministers, which is slated to meet on Monday.

The Telecom Commission, which is an inter-ministerial panel of secretaries and the highest policy making body on telecom matters, forwarded all options zeroed in by it, as well as the

AGs opinion to the EGoM for a final decision.

No decision was taken today. All the options would be placed before the EGoM on Monday and they will take a final call, said MF Farooqui, chairman, telecom commission, who is also secretary, department of telecom (DoT).

Farooqui added that a key parameter for deciding the new rate of SUC would be maintaining the governments annual earnings from the SUC. In fiscal year 2012-13, the government earned a total of R5,689.88 crore from spectrum levy, an increase of about 10.5% from the previous fiscal.

The issue is rationalising spectrum usage charge before the auctions for 900 and 1,800 MHz, which commences from February 3. The Telecom Regulatory Authority of India had recommended that SUC for all auctioned spectrum be made uniform at 3%, while in cases of a mix between auctioned and administratively allotted spectrum, it be kept at 5%. Since GSM operators currently pay an escalating SUC ranging between 3-8% the charge becomes higher as spectrum holding increases they supported the recommendation. However, Reliance Jio, which won pan-India spectrum in 2.3 GHz in 2010 auctions for BWA services, opposed the move, as the SUC was then fixed at 1% for BWA services. The company raised the issue of violating contractual obligations.

Facing a tough situation, the TC, which last met on January 7 to take a call on the rationalisation of SUC, drew up three options to deal with BWA operators and sought a legal view on it from the AG.

The options were: SUC for spectrum acquired for BWA in 2010 auctions be raised to 3%; this be kept at 1% and be reported separately; and SUC for standalone BWA be kept at 1%, but if combined with spectrum bought in fresh auctions then the charge be the weighted average of acquired spectrum at 3% and BWA at 1%.

Vahanvati has ruled out the first and third options and said only the second option is legally feasible.

This made the job of the TC difficult on Saturday. Theoretically, it could have agreed with the AGs view and suggested that for BWA spectrum 1% would be applicable and be reported separately, and if BWA operators acquire fresh spectrum in auctions, they would pay 3% along with GSM operators.

However, theres a problem in the implementation of this regime. Segregating the revenue of BWA in 2.3 GHz and voice in 900/1,800 MHz is not possible because of the inter-working of phones and SIM cards between the two technologies.

In fact, the department of telecommunications was faced with the same problem in 2008 while working out the SUC for 3G spectrum at 1%, which was to be allotted through auctions. Stating that segregation of revenues was not possible due to inter-working of phones and SIM cards between the two technologies, the panel raised the SUC across the board by a percentage point.

Industry analysts said if the government goes by the option provided by the AG, it should lay down strict islanding provisions between BWA services and voice services. This means that there should be separate phones and SIM cards for the services provided by 2.3Ghz and 900/1,800 Mhz spectrum bands, something on the lines of distinction between GSM and CDMA services.

In the absence of any such provision, there would be huge opportunity of arbitrage available to operators with both set of spectrum bands, as they can shift revenues accruing from 900/1,800 bands to 2.3Ghz band to pay lower charges to the government.

Examples of such arbitrage have been there in the past between Internet and voice services, where the licence fee differ and it is to check such practices that recently the Delhi High Court allowed the Comptroller and Auditor General to audit the revenue receipts of mobile operators.

The EGoM headed by finance minister P Chidambaram needs to take the final decision on the issue on Monday, as the auctions are slated to begin from February 3. Monday is also the last day for operators to withdraw their names from participating in the auctions. Eight operators have shown interest in participating in the auctions, with the bulk of them,including Bharti Airtel, Vodafone, Idea and Telenor, seeking clarity on SUC before the auction begins. The general belief is that if the SUC is not rationalised, the auctions would be tepid, especially for the 1,800 Mhz band, because having more spectrum would lead to operators also paying more to the government.

If the SUC is rationalised, the auctions promises to be good and the government can look at realising revenues of as much as R40,000 crore.