Spectrum charges: Centre takes the middle path

The Government on Monday struck a balance between protecting its revenue and facilitating telecom companies to acquire more spectrum in the auction scheduled for February 3.

The ministerial group looking into the issue has decided to do away with the escalating system of collecting spectrum usage charges (SUC), wherein operators pay between 3 per cent and 8 per cent of their annual revenues as charges, depending on the quantum of spectrum held.

At the same time broadband players such as Reliance Jio can continue to pay the existing fee.

According to the new formula cleared by the ministerial group, operators can acquire any amount of spectrum in the auction by paying a flat 5 per cent spectrum usage charge.

Incumbent operators will have to pay the weighted average of the rate they currently pay and the new 5 per cent rate.

This will bring some relief to older players such as Airtel and Vodafone, who will now be able to buy more spectrum without worrying about higher charges.

Most of the incumbent players currently pay a fee of 6 per cent and would move to the 8 per cent slab under the existing system if they bought additional spectrum.

For example, an operator with 8.2MHz of GSM spectrum currently pays 5 per cent of its annual revenue as spectrum usage charge. If this operator acquires additional spectrum in the auction and raises its total holding to 12 MHz, then it would have had to pay 8 per cent of its annual revenue as SUC under the current system.

Under the new system, the telecom operator will pay a spectrum usage charge that is slightly more than 5 per cent.

The ministerial group has also decided that broadband players will continue to pay a 1 per cent fee. This will please Mukesh Ambani’s Reliance Jio, which had opposed any change.

“The SUC regime announced today offers a reasonable compromise for all the main stakeholders. The Government may see fiscal revenue from SUCs slip a bit in the first year, but long-term revenue should go up as industry revenues continue to grow,” said Mohammad Chowdhury, Leader, Telecom, PwC India.

“Clarifying the SUC regime before the auctions in February, is helpful for operators who want as much certainty as possible for their bid strategies,” he added.

But GSM operators are not too happy with the outcome. While the new rate is lower than the existing fee, it is higher than the 3 per cent charge proposed by TRAI. They are also unhappy that Reliance Jio has been allowed to retain the lower rate of 1 per cent.

“This differential treatment could give broadband players the opportunity to play on the arbitrage by showing higher revenues on broadband spectrum,” said Rajan Mathews, Director General, Cellular Operators Association of India.

“The new formula fails to achieve the objectives set out initially by TRAI, which was to remove such an arbitrage opportunity and level the playing field for all the operators.”