The Telecom Commission on Monday fixed the minimum spectrum usage charge (SUC) that operators need to pay the government at 3% of their adjusted gross revenue. In doing so, the commission has largely stuck to its earlier formula decided on June 7 of calculating the SUC by a weighted average formula that will include the 2300 (BWA) MHz spectrum acquired through auctions in 2010 in the weight. The only addition it has made is by introducing a floor rate. What this does is increase the payout of Reliance Jio Infocomm and Aircel from 2.88% and 2.83%, respectively, as per the earlier formula to 3.05% and 3% now. For others, the payout remains the same (see chart).
The weighted average will be calculated between broadband wireless access (BWA) spectrum (rate 1%), the current SUC rate (5% for spectrum bought in 2014 and 2015 and slab rates before it) and the spectrum that will be acquired in future, which has been fixed at 3%. According to a department of telecommunications official, Monday’s decision checks any possible arbitrage by operators, protects government’s revenue and brings about a level playing field among different players. The TC’s decision will now be sent to the Cabinet for final approval.
The commission rejected the recommendation of the Telecom Regulatory Authority of India submitted on July 12 that had complicated matters by also adding the bid values of each band of spectrum to the existing weights. Any reduction in the SUC payment of any operator as a result of this exercise is purely theoretical. This is because the commission has adopted a revenue-neutral approach to prevent any loss to the government. This means operators will continue to pay a minimum amount they paid in 2015-16. For instance, if the SUC of Bharti as a result of the change goes down to Rs1,000 crore but it paid Rs1,200 crore in 2015-16, it will have to continue to pay the same. The only way Bharti or any other telco will see an actual reduction in their payout will be if their revenue increases. However, since a new player, Reliance Jio, is entering the market, it is obvious it will reduce tariffs, which would be followed by the incumbents. In this scenario their revenue will decrease but the SUC will remain intact.
The government earned Rs7,000 crore through SUC in the previous fiscal.
If the revenue-neutral approach was not applied, its earning this year would have come down by Rs500 crore. For operators like Vodafone and Idea, which did not acquire BWA spectrum in 2010 and if they do not buy any spectrum in the forthcoming auctions, nothing changes. Telecom industry executives said that ideally the commission should have made the rate for all auctioned spectrum at 3% and added the weight of the administratively allocated spectrum as well the BWA spectrum.
The issue of SUC became a contentious one in recent times with the DoT wanting to bring about a flat rate for all past and present spectrum holding by operators. But attorney general Mukul Rohatgi opined that the government cannot hike the SUC on 2300 (BWA) MHz spectrum acquired in 2010 auctions from 1%. However, he said, it can be included in the weighted average formula. Earlier, the 1% rate for BWA was kept outside the weighted average formula.
The scope for arbitrage was arising because with carrier aggregation, an operator can provide 4G services through 2300 MHz, 800 MHz as well as 1800 MHz. However, if the rates for them are not similar, there’s a possibility of booking revenues in the lower rate, in which case the government loses out on revenue.
For instance, an operator like Bharti Airtel has spectrum in 1800 and 2300 MHz through which it provides 4G services. Its competitor, Reliance Jio has spectrum in 1800, 800 and 2300 MHz to offer 4G services. If the change would not have been brought about, for providing the same service, while Bharti would have paid an SUC at 5% for spectrum acquired in 1800 MHz, it would have had to pay it at 1% for 2300 MHz. RJio would also have paid 1% for 2300 MHz and 5% for 800 and 1800 MHz.