Clearing the air

The Telecom Commission’s view on collecting uniform spectrum usage charge from all telecom operators augurs well for an industry that has been fighting for a level playing field on this issue for over five years. Currently, operators pay between 1 and 6 per cent of their annual revenues, depending on the quantum and type of spectrum they own. This system worked well when the Centre allocated incremental spectrum on a subscriber-linked criterion. However, over the last five years, both spectrum allocation policy and technology have changed. Airwaves are now allocated only through the auction mechanism. Technological advancements enable operators to offer voice, data and video services by seamlessly integrating all frequency bands. In this context, continuing with the differential usage charge presents operators huge arbitrage opportunities that would be hard to detect.

The genesis of this arbitrage was the auction in 2010 when both 3G (2100 MHz) and broadband spectrum (2300 MHz) were auctioned. The Centre took the view that spectrum assigned through auctions should not attract usage charge and therefore, a nominal fee of 1 per cent was fixed to cover administrative costs. But an anomaly crept in when the department of telecom argued that 3G airwaves could be combined with 2G spectrum and hence it was not technically possible to separate the revenues. This meant that 3G spectrum was subjected to the same slab rate as determined by the subscriber-linked criterion. On the other hand, the usage fee for broadband spectrum was kept at 1 per cent, assuming that operators would use a technology that worked independently for 2G and 3G. This assumption has turned out to be flawed because operators who bought broadband spectrum, including Airtel and Reliance Jio, are now using fourth generation technology to offer voice and data services by seamlessly integrating with 2G and 3G platforms. This gives them an opportunity to show higher revenues on the 2300 MHz band to take advantage of the lower revenue share. It would be difficult for an auditor to verify if the operators are separating revenue correctly as the usage switches between various bands.

It could be argued that changing the rules of the game midway would be unfair to those who bought broadband spectrum in 2010. But policies can be effective only when they ensure a level playing field to all players. There cannot be a situation where there are two sets of operators offering the same type of services but paying different revenue share due to legacy regulations. Operators have misused similar arbitrage opportunities in the older licence fee regime when telecom companies were penalised for showing higher income on services with lower licence fee. This malpractice was put to an end when the Centre introduced a uniform licence fee. The Telecom Commission should use the same logic to push through with the uniform spectrum charge to correct an anomalous situation.