In a blow to incumbent GSM mobile operators, the Department of Telecom's internal committee has accepted the formula suggested by the telecom regulator for pricing 2G spectrum.
The committee has, however, rejected other proposals including those related to changing the roll out obligation norms, reducing licence fee to 6 per cent and relaxing mergers and acquisition norms. The committee's views have been sent to the Telecom Commission which is expected to meet on November 28 to discuss this.
One-time fee
The telecom regulator had proposed to fix Rs 4,571 crore per Mhz for all spectrum beyond 6.2 Mhz. The DoT panel has accepted this and said that the one-time fee will be calculated on a pro rata basis from May 27, 2008 till the remaining period of the licence. This will result in a huge outgo for incumbent players such as Bharti Airtel and Vodafone which have up to 10 Mhz spectrum in some circle.
The DoT panel has also accepted TRAI's proposal to price spectrum in the 900 Mhz band 1.5 times higher.
But the committee has not accepted TRAI's proposal to impose a uniform licence fee of 6 per cent of the annual revenues. The panel has proposed a uniform fee of 8 per cent, which is lower than the 8.5 per cent suggested by an earlier committee.
At present, operators pay between 6 per cent and 10 per cent of their annual revenues as licence fee and infrastructure providers such as tower companies and Internet service providers do not pay any revenue share to the Government.
A flat rate of 8 per cent will, therefore, put more burden on all telecom companies.
On the crucial issue of auctioning 700 Mhz band, the panel has accepted in principle to limit the auction to only those operators which do not have air waves in 800 Mhz or 900 Mhz band. But the DoT will take a final view after TRAI submits its recommendations on spectrum re-farming.
This has huge ramifications for the incumbent operators as they already have spectrum in either 800 Mhz or 900 Mhz band.
If the DoT finally accepts this, operators including Airtel, Vodafone and Reliance Communications will not be able to bid for the 700 Mhz band, which is globally used for 4G broadband services. Only Reliance Industries-owned Reliance Infotel will be able to bid along with some of the new GSM players which had got spectrum in the 1800 Mhz band.
The DoT panel has rejected TRAI's proposal to set up a specific fund for financing spectrum re-farming.
It has said that such a fund would sit idle for a long time and hence the present practice of meeting costs from the consolidated fund of India should be continued.
Roll-out obligation
On the question of changing roll-out obligation from geography-based coverage to population-based system, the DoT panel has said that it was not possible to change the norms now since most of the operators have already completed their roll-out obligation. It also said that there are serious limitations in measurement of habitation due to undefined boundaries in villages.
On the crucial issue of mergers and acquisition, the internal committee has rejected TRAI's suggestion to allow mergers even if the combined market share of the entity goes up to 60 per cent.
The panel has proposed tightened norms wherein no merger will be permitted if the market share goes above 35 per cent on grounds that anything above that could create a monopolistic situation.
This is bad news for the industry as the current rule allows M&As up to a market share of 40 per cent. However, the suggestion to allow the merged entity to own up to 25 per cent of the spectrum available in a circle has been accepted.