Lower spectrum usage charge to mean little to Bharti Airtel, Vodafone and Idea, Centre

By: | Updated: April 5, 2016 8:30 AM

The Telecom Commission's decision to charge a flat 3% spectrum usage charge (SUC) on mobile operators' adjusted gross revenue (AGR) in place of 5% with regard to spectrum acquired through auctions will be revenue-neutral for both the players and the government as it is only for spectrum acquired in the forthcoming auctions around June/July.

call dropsAccording to sector analysts, segregation of revenues between BWA and other spectrum bands is a difficult task and if not done properly leaves room for misuse for operators having spectrum across all bands.

The Telecom Commission’s decision to charge a flat 3% spectrum usage charge (SUC) on mobile operators’ adjusted gross revenue (AGR) in place of 5% with regard to spectrum acquired through auctions will be revenue-neutral for both the players and the government as it is only for spectrum acquired in the forthcoming auctions around June/July. Further, the move creates confusion by adding one more layer to the four different ones already existing under the SUC regime. Most importantly, it does not address the scope of arbitrage by leaving the charge for broadband wireless access (BWA) spectrum holders at 1% of their AGR.

Thus, operators having spectrum acquired through previous auction will have to pay the charge by a weighted average formula if they choose to buy spectrum in the forthcoming auctions, taking their final payment higher than 3% and quite close to what they currently pay.

At present, most operators like Bharti Airtel, Vodafone and Idea pay an average SUC close to 5.5% because they have a mix of administratively allocated spectrum and that acquired through auctions. The TC’s decision, which needs ratification by the Cabinet, creates different charges for spectrum auctioned before 2016 and after, so once again the final charge will be calculated by the weighted average formula.

spectrum

An operator like Telenor, which has only auctioned spectrum, will also have to pay via a weighted average formula if it chooses to buy spectrum again in the forthcoming auction.

Operators would continue to pay close to what they are doing currently though the final figure will depend on what quantum of spectrum they buy and in which circle.

The TC’s decision taken at its meeting on March 28 is based on the recommendations of the Telecom Regulatory Authority of India with regard to the reserve price for the forthcoming auctions. However, Trai has just reiterated what it had said in its September 2013 recommendations, which were later tweaked by the then UPA government. The regulator had then mooted a flat SUC on all auctioned spectrum at 3%, including on BWA spectrum, against the existing slab that ranged between 3% and 8%. This was because with spectrum being auctioned, only administrative cost needs to be recovered. For operators who had a mix of administered and auctioned spectrum, the regulator had suggested a flat charge at 5%. The idea was that by 2022, when all existing licences would be renewed, there would be a seamless, flat 3% charge for all.

The then UPA government in January 2014 tweaked the proposal by charging 5% on auctioned spectrum and devised a weighted average formula for those who had a mix of both. Upon objections by Reliance Jio, it retained the 1% for BWA spectrum holders.

This leaves scope for arbitrage by booking revenues accruing through other bands of spectrum under the BWA stream. According to sector analysts, segregation of revenues between BWA and other spectrum bands is a difficult task and if not done properly leaves room for misuse for operators having spectrum across all bands. The problem arises because today there are smartphones that can work across multiple bands. A similar issue had cropped up before the department of telecommunications in 2008 while deciding the SUC for 3G spectrum, when an internal panel had ruled that segregation of revenues between 2G and 3G services was not possible because of similar interworking of phones and SIM cards across the two technologies.

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