Trai’s flat spectrum usage charge dilemma; govt should not find itself helpless

By: |
July 18, 2016 6:16 AM

Rather than using the AG opinion as an alibi, the government should adopt a pragmatic approach

If the AG opinion means that the provision of 1% SUC on BWA spectrum is cast in stone and cannot be changed, then how can a weighted average even be recommended. (Reuters)If the AG opinion means that the provision of 1% SUC on BWA spectrum is cast in stone and cannot be changed, then how can a weighted average even be recommended. (Reuters)

There is an ongoing debate on the prospective spectrum usage charge (SUC) to be fixed at a single and flat rate. Both Trai and DOT are shying away from taking a pragmatic decision to introduce a single and flat rate of SUC. The constraint seem to be the opinion of Attorney General (AG). Since I am not privy to the opinion, I have picked up an extract from the Trai recommendation which mentions about the AG’s opinion as under:

“The contract which emerged after the 2010 auction and which is legally binding on both parties, does not permit the Government to change the SUC for BWA unilaterally.”

This opinion touches upon two important aspects: (i) Whether the agreement once executed between the licensor and licensee is considered to be cast in stone; or the government has the authority to make amendments in the agreement and (ii) whether in the past, the terms and conditions of the license have been changed by the government unilaterally?

Let us examine the first issue first:

The unified license contains the following provision with regard to spectrum charges:

“In case the Licensee obtains spectrum, the licensee shall pay spectrum related charges, including payment for allotment and use of spectrum, as per provisions specified in the relevant NIA document of the auction of spectrum or conditions of spectrum allotment/LoI/directions/instructions of the Licensor/WPC Wing in this regard.”

In fact, when we look at the provision on NIA, under which the BWA spectrum was auctioned. It had a clause 5.5 relevant to SUC which stated that “A spectrum usage charge (over and above the spectrum auction price and the applicable license fees) as a percentage of the Adjusted Gross Revenue (“AGR”) shall be payable by Successful Bidders as per rules notified by the Government from time to time”. The term “time to time” provides enough flexibility to the government to alter the rules.

This power is retained by the government in the unified license under clause 5.1 which states that “The Licensor reserves the right to modify at any time the terms and conditions of the License, if in the opinion of the Licensor it is necessary or expedient to do so in public interest or in the interest of the security of the State or for proper conduct of the Telegraphs. The decision of the Licensor shall be final and binding in this regard.” Clause 42.8  of the UL license further states that the licensor/ WPC wing reserves the right to modify the procedure for allotment of spectrum and/or rates for payment for said allotment and use of spectrum at any time.

Streamlining the SUC rate to ensure proper recovery of charges and plugging any loopholes to avoid any possible evasion of payment of SUC is sufficient ground for the government to make changes in the SUC in interest of public and exchequer as well as for proper conduct of telegraphs.

Further, if the AG opinion means that the provision of 1%  SUC on BWA spectrum is cast in stone and cannot be changed, then how can a weighted average even be recommended as a weighted average calculation as opposed to a fixed rate itself will amount to a change in the condition of the agreement. If the government has the right to change this absolute charge of 1% spectrum charge to a weighted average, then the government definitely has right to streamline the charge with a single rate. Policy changes have been made in the past and biggest example of that is the migration package offered to the telecom operators in 1999.

Let us now look at the second aspect of the opinion relating to unilateral change versus bilateral change:

This has been an issue of debate between the licensor and the licensees since the time of privatisation of the telecom sector . The term “agreement” means bilateral and would require changes to be affected in the terms and conditions of the license via a bilateral dialogue. But there are several conditions of the licence which have been changed from time to time by the government unilaterally. Some of these are changes in the definition of “revenue” and “adjusted gross revenue”, bringing the concept of dual technology into the agreement, changing the SUC from fixed to weighted average. This list can go on and on.

The government should not find itself helpless in introducing one flat rate for SUC. Fixing a flat rate will remove the scope for any manoeuvering of the definition of the term “revenue” for the purposes of making the payment of spectrum charge. CAG has already raised several questions regarding payment of license fee and spectrum usage charges. The complicated formulas are going to make the situation even worse.

Proponents of sound public policy maintain that when the government acts on a policy with full integrity and without compromising on fairness, it will always come out a winner. The ability to differentiate between facts and evidence on one side, and bias and subjectivity on the other will help in arriving at a right decision which may not benefit everyone immediately, but will surely stand the test of fairness in long run.

Therefore, rather than using the AG opinion as an alibi, the government should take a pragmatic approach and come out with a single and flat rate SUC which will be good for the entire telecom sector in the long run to bring in simplicity and transparency which are the two important objectives of the government of the day.

The author is CEO of Tathya Consulting

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