DoT draft seeks 25% cut if new licensees sell stake

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New Delhi, Sep 28: The recent stake sale of 45% by a new telecom licencee, Swan Telecom, to Arabic telecom major Etisalat for $900 million, has made the department of telecommunications (DoT) draft a proposal that seeks to give the government a share in such “unearned gains”.

According to sources, the DoT will write in a provision that would give the government a 25% share in the income made by the company from the sale of its stake. This provision will apply if the sale occurs within three years of the company getting the licence to rollout telecom services. This new charge would be levied in the form of a spectrum usage charge by the government.

DoT has started work on it since there has been pressure in the past from the finance ministry to either go for an auction of 2G spectrum or revise upwards the pan-India entry licence fee from the current Rs 1,651 crore. Since the DoT has not accepted either, it has decided to come up with a 25% levy on income from stake sale proposal.

However, it is not clear at this point whether this would be applied retrospectively or from a prospective date.

As per the mergers & acquisitions guidelines of DoT, new licensees cannot sell the company 100% before three years. However, they can go for stake sales. If the proposal is applied retrospectively, Swan Telecom would have to pay around Rs 1,000 crore or $225 million to the government. The proposal has been floated at a time when other new telecom licensees, like Unitech, are also in advanced stages of talks for selling up to 26% stakes.

This proposal will apply only to new licensees, such as Unitech, F Tel and Loop Telecom, for the first three years from the date of allotment of the universal access service licence (UASL) and only on 2G services. The 3G services, for which the auction guidelines are being finalised, entails an auction of the spectrum, hence no such charges would be levied on the licensees who apply for the UASL after winning the 3G spectrum bid. However, the new players who attain the UASL through the 3G auction route too would not be able to sell the entire 100% stake before three years.

According to DoT sources, the aim of the proposal is to discourage new licensees from offloading stakes as the high valuation without having either network, infrastructure or subscribers leads to the notion that a scarce resource like spectrum is being traded by taking it cheap from the government and then selling it at a higher price.

The pan-India UASL comes for Rs 1,651 crore, a price discovered in 2003, and operators get a start-up spectrum of 4.4 MHz bundled with it. After that subsequent chunks of spectrum are allotted as and when operators reach a certain subscriber base.

This is remarkably different from the practice followed in other countries. For instance, in the US, spectrum is not bundled with the licence but is separately auctioned. Communications & IT minister A Raja has resisted auctioning 2G spectrum on the ground that existing operators got it without an auction so going in for a mid-course correction would amount to dual-principle and may lead to litigation.