The upcoming auctions could lower spectrum usage charge (SUC) and drive annual cash savings of Rs 700 crore to Rs 2,100 crore for telecom operators, as per estimates drawn by analysts.
Bharti Airtel, Reliance Jio, and Vodafone Idea can maximise net savings at Rs 2,000 crore/Rs 2,100 crore/ Rs 700 crore, respectively, if they buy 500/500/300 MHz in 26 GHz band, respectively, as per estimates drawn up by brokerage Jefferies.
As is known, under the new policy announced by the government in September 2021, spectrum acquired through the upcoming auctions and even future ones will not attract any spectrum usage charge.
While the methodology of calculating SUC is the same as earlier, the department of telecommunications recently removed the 3% floor rate on SUC. This would mean that as and when operators buy more spectrum in future auctions, over a period of time their SUC will become zero on their entire spectrum holding.
The SUC regime has changed over the past decade. For instance, on spectrum acquired till 2013, the SUC range was 3-8% of operators’ adjusted gross revenue, depending on the spectrum band and amount of spectrum held. From 2014, the government moved to a uniform SUC regime independent of bands and amount of spectrum held. While this was set at 5% for spectrum acquired in 2014 and 2015 auctions, it was lowered to 3% for spectrum acquired in the 2016 and 2021 auctions. This has been brought down further to 0% from 2022.
Telcos hold 80-95 MHz of unpaired spectrum at blended SUC rate of 2.9-3.9% in each circle across bands. In the upcoming auctions, the operators can acquire up to 130MHz/ 1,110MHz in 3300MHz/ 26GHz bands, respectively, which will help them lower their blended SUC rate.
A 300 MHz purchase of 26 GHz spectrum will lead to the blended SUC rate for the operators to fall to sub-1% levels, resulting in annual cash savings of Rs 700 crore-Rs 2,000 crore after adjusting for annual spectrum installment of Rs 200 crore, as per calculations done by Jefferies.
With combined demand for 26 GHz at 1300 MHz being lower than 2850 MHz supply, this spectrum may not see price escalations which would keep savings intact.
At reserve prices, Bharti and Jio will have to pay an annual installment of Rs 3,000 crore for 20 years to acquire 100 MHz spectrum in the 3300 MHz band on a pan-India basis. If they acquire 500 MHz in 26 GHz band then their net annual cash outflow will be lowered to Rs 800 crore-Rs 900 crore due to SUC savings implying an over 70% reduction in annual installments.
The SUC savings will also enable Vodafone Idea to acquire 50 MHz spectrum in 3300 MHz band in seven circles, accounting for 62% of its revenues on a cash-neutral basis. “If it acquires 50 MHz spectrum in its top 16 markets forming 96% of its revenues, then the net annual cash outflow will still be manageable at Rs 650 crore,” Jefferies has said.