EGoM slashes spectrum fee to spur bids in Feb 3 auction

Written by ENS Economic Bureau | New Delhi | Updated: Jan 28 2014, 15:34pm hrs
Bharti Airtel, Vodafone India, spectrum fees, average chargeBharti Airtel and Vodafone India that have large amounts of spectrum and pay as much as 6-8 pct SUC could see their average charges drop closer to 5 pct.
Telecommunication firms buying airwaves in the upcoming spectrum auction slated for early next month will have to pay lower spectrum usage charge, broadly annual charges for use of airwaves of up to 5 per cent of their adjusted gross revenues as against the 3-8 per cent range currently.

With the decision by the empowered group of ministers (EGoM) on Monday, older telecom firms Bharti Airtel and Vodafone India that have large amounts of spectrum and pay as much as 6-8 per cent SUC could see their average charges drop closer to 5 per cent. They were two of the first companies which got spectrum when India opened up the telecom markets.

Reliance Jio, which holds a BWA licence and pays a 1 per cent fee for the spectrum, will continue to pay the same rate for the airwaves they hold and 5 per cent for any spectrum they buy in the auctions. Its average spectrum charge could be consequently lower than 5 per cent. The subsidiary of Reliance Industries bought 4G spectrum in a 2010 auction.

The new SUC of 5 per cent, cleared by the ministerial group is higher than the 3 per cent flat rate suggested by telecom regulator, Telecom Regulatory Authority of India (Trai). It had proposed flattening the current five different rates to one. Significantly, industry chamber CII expressed disappointment. While the decision on SUC brings uncertainty to an end, we are not excited at the outcome. Bharti, Vodafone and RIL are all members of CII. While the former two had lobbied for a cutback in the rates, Reliance Jio had opposed raising it.

CII said the higher charges now proposed will add to the woes of an industry already burdened with high debt

The new rates pave the way for the auctions due to begin on February 3 for 900 and 1800 MHz. Speaking after the meeting, telecom minister Kapil Sibal said that the decision will help the companies buy more spectrum in the auction. 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. He also clarified that the total spectrum fee for carriers existing spectrum and new airwaves bought from the February auction will be calculated based on a weighted average of the old and new rates.

Mohammad Chowdhury, leader, Telecom, PwC India, said The SUC regime announced today offers a reasonable compromise for all the main stakeholders. According to him, the government may see fiscal revenue from SUCs slip a bit in the first year, but the long term revenue should go up as industry revenues continue to grow.

Chowdhury explained that existing operators who currently pay 8 per cent charges will see relief from the new guidelines as more and more of their spectrum holdings qualify for the lower 5 per cent threshold. The inter-ministerial secretary level Telecom Commission had forwarded three suggestions to the ministers on Saturday.

In its September recommendations on the valuation of spectrum, the Trai had suggested a uniform usage charge of 3 per cent, an issue that split the industry. The issue of the quantum of SUC was one of the crucial aspects that was yet to be decided before the spectrum auctions. The auction has eight confirmed participants. Tuesday is the last day for the companies to withdraw their applications.

Telecom M&A norms in a week

New Delhi: The merger and acquisition guidelines for the telecom sector are likely to be released in a week, a senior government official said on Monday. M&A guidelines shall be published in a week. We have received legal opinion today which is being examined, telecom secretary MF Farooqui said.