1. AG for clubbing BWA spectrum to avoid arbitrage in SUC

AG for clubbing BWA spectrum to avoid arbitrage in SUC

The problem: 4G services can be provided by 1800, 800, 2300 & 700 (post-auctions)

By: and | New Delhi | Published: June 3, 2016 7:32 AM

Attorney general Mukul Rohatgi has told the department of telecommunications that while it cannot hike the spectrum usage charge (SUC) on 2300 MHz (BWA) spectrum acquired in the 2010 auction from the current rate of 1% of the adjusted gross revenue (AGR) of the operators, a uniform rate can be arrived at by a weighted average formula, which will club this band of spectrum also with the other bands a operator may be having. This way, the problem of revenue segregation and arbitrage can be checked, which was highlighted by all mobile operators except Reliance Jio Infocomm. Even a government-appointed committee had said that since 4G services can be provided by spectrum in 1800 and 800 MHz bands also apart from 2300 MHz, there was no way revenue can be segregated if the rates applied on them are different.

When contacted, Rohatgi told FE, “What I have advised in my legal opinion is that the SUC on 2300 MHz band spectrum acquired in 2010 auction cannot be hiked from 1% as the notice inviting application for that auction did not explicitly mention that the government has the power to change it in future.”

The problem: 4G services can be provided by 1800, 800, 2300 & 700 (post-auctions)
* Operators say segregation of revenues not possible

AG’s solution
* Bring 2300 auctioned in 2010 also under weighted average formula

Post AG’s report scenario
* Avg SUC paid by Bharti, Vodafone & Idea: 4.5% of AGR
* Avg SUC paid by RJio, 3% of AGR

The AG added: “However, the NIA (notice inviting applications) for subsequent auctions gave the government the power to do so. However, to address the problem of revenue segregation, I have said that a weighted average formula be applied operator-wise across spectrum bands, which will also include the 2300 MHz acquired in 2010.”

Though currently the weighted average formula is applied for calculating the SUC for operators who hold a mix of administrative and auctioned spectrum, 2300 MHz spectrum was kept out of it.

The AG’s opinion will help the government move towards a uniform SUC for all other bands of spectrum barring 2300 MHz, thus cleaning up the current system where several rates exist. A DoT official told FE that based on the AG’s advise, they will draft a new proposal on a uniform SUC and seek the approval of the Telecom Commission shortly. The uniform SUC is likely to pegged at 4.5%.

Currently there are only two operators — Reliance Jio and Bharti Airtel — that have acquired 2300 MHz band spectrum in the 2010 auctions. While Bharti Airtel through the Cellular Operators Association of India has already written to the government urging for a uniform SUC expressing its inability to segregate revenues, Reliance Jio is holding the position that since the NIA for the auction had fixed SUC at 1% of the adjusted gross revenue, changing it would be illegal.

However, Reliance Jio is unlikely to object to the weighted average formula suggested by the AG even though it brings 2300 MHz in its ambit, because since the total quantum of spectrum that it holds across bands is less than, say, Bharti or Vodafone, effectively it will pay around 1.5% less than them. However, with time, as it

buys more spectrum in successive auctions, the rates may get even.

“The use of multiple bands such as 2300, 1800, 800 and 700 MHz (post-auction) for provisioning of same technology, ie, LTE, and with carrier aggregation becoming a reality, segregation of revenues basis spectrum bands becomes almost impossible,” COAI had written to telecom secretary JS Deepak on April 19.The Supreme Court had left the matter of deciding a uniform SUC to the government via its order on April 8.

With complications in revenue segregation, the Telecom Commission at its meeting on April 30 had sought the AG’s view on whether it can bring in a uniform SUC rate by including the 2300 MHz spectrum in it.

The need for a uniform SUC was felt when a few months back the Telecom Commission decided to charge a flat 3% rate for all bands of spectrum acquired in the forthcoming auction scheduled for sometime in July. This, instead of making things easier, only complicated matters as the layers of SUC only got increased with more room for arbitrage. An operator like Bharti Airtel has spectrum in 1800 and 2300 MHz bands through which it provides 4G services. Its competitor, Reliance Jio, has spectrum in 1800, 800 and 2300 MHz bands to offer 4G services. For providing the same service, while Bharti will pay an SUC at 5% for spectrum acquired in 1800 MHz, it will have to pay it at 1% for 2300 MHz. RJio will also pay 1% for 2300 MHz and 5% for

800 and 1800 MHz. If they acquire spectrum in the same bands in the forthcoming auctions, they will have to pay SUC at 3%.

Even the SUC for the same band providing same service is different. For example, SUC on 1800 MHz acquired in the 2014 and 2015 auctions are charged at 5% of AGR whereas 1800 MHz acquired in 2012 auction is charged at the slab rate (3-8%, depending on the spectrum an operator has, with rate going up as quantum of spectrum increases). Similarly, SUC on 2100 MHz acquired in the 2015 auction is charged at 5% of AGR, whereas 2100 MHz acquired in 2010 is charged at 3% for standalone 3G and at the slab rate for operators holding administrative spectrum.

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