One-time spectrum fee okayed; call rates may go up

The Cabinet on Thursday cleared levying one-time fee of around Rs 31,000 crore for the spectrum that incumbent telecom companies hold.

New Delhi: The government Thursday approved a proposal to levy a one-time fee on telecom companies holding spectrum beyond a specified limit, to garner almost Rs 31,000 crore.

The move may hit market leaders Bharti Airtel and Vodafone the most. Other operators like Idea Cellular, Reliance Communications, MTNL and Tata Teleservices Ltd also would be impacted by the levy which may translate into higher tariffs for consumers.

Finance Minister P Chidambaram said the Union Cabinet headed by Prime Minister Manmohan Singh accepted an Empowered Group of Ministers' recommendations that mobile phone companies be charged a one-time fee for the excess spectrum they own beyond a cap set by the country's telecom regulator.

"Spectrum will be charged for holdings beyond 4.4 (Mhz) in GSM on auction determined price. For GSM above 6.2 (Mhz), one-time charge will be levied from July 2008 onwards," Finance Minister P Chidambaram said here.

The ministerial panel had suggested that GSM-based telecom operators be asked to pay for airwaves they hold beyond 4.4 Mega-Hertz (Mhz) at an auction-determined price, while CDMA carriers pay for holdings beyond 2.5 MHz for the remaining validity of their permits.

Telecom Minister Kapil Said that that operators will have to pay two set of charges. "Prior to January 1, one price (and) after January 1 auction determined price will be levied (for rest of the licence period)," Sibal said.

Telecom operators were earlier given licence for Rs 1,658 crore which also included initial allocation of 4.4 Mhz spectrum and promise of additional 1.8 Mhz spectrum, amounting to total of 6.2 Mhz spectrum, after acquiring certain number of customers on their network.

GSM operators holding more than 6.2 MHz of spectrum will pay a retroactive fee for the airwaves from July 2008 till end of this year.

The price would be the 2001 entry fee duly indexed using State Bank of India Prime Lending Rate divided by 6.2.

He added that telecom operators will be given option to surrender spectrum beyond 4.4 Mhz in GSM.

Telecom operators will be allowed equated annual instalments at interest rate of 9.75 percent for the balance period of licence. However, the last instalment should be paid not later than 12 calendar months prior to expiry of the licence.

Telecom operators will also have the option of full upfront payment or pre-payment of one or more instalments.

The government, however, could not decide on charging one-time spectrum on CDMA players as there are no bidders for scheduled auction of CDMA spectrum.

As per DoT estimates, if the spectrum is sold at minimum price fixed by it, then government will get Rs 30,927 crore from one-time fee. This estimate inlcuded around Rs 5,900 crore from CDMA players having spectrum beyond 2.5 Mhz.

Telecom Minister Kapil Sibal hoped his ministry's calculations of garnering about Rs 31,000 crore from the surcharge would be met.

Sibal said the government will determine the basis of price CDMA players will have pay in the interim before the auction takes place. The auction discovered price will then be paid and whatever payments are made will be adjusted towards auction determined price.

"We will take the decision before because the payment has to be started from January 1 ... Whatever interim decision has to be taken has to be taken before January 1," he said.

DoT estimates show that telecom public sector unit BSNL and MTNL have to jointly shell out Rs 11,818 crore after this decision. These PSU have written to Telecom Ministry for relief but Sibal said "we will be separately coming to the Cabinet on that."

Telecom companies have opposed the fee, arguing it will hurt them at a time when their profits are under pressure from stiff competition and interest costs on the debt they took in 2010 to pay for third-generation spectrum.

On the issue of allotment of initial spectrum to operators who have paid the requisite fee but have not been allotted spectrum so far, the Cabinet decided that the claim of such company for allotment of 4.4 MHz of spectrum will be considered after completion of the auction process, subject to availability of spectrum.

"This is only related to one case Tata's so after this (auction) process is completed the issue will be considered," Sibal said.

Even after failure of CDMA spectrum auction, government said that it expects to garner Rs 40,000 crore as non-tax revenue for this fiscal continues from telecom spectrum.

"It stays and we urge you to join the aggressive bidding," Finance Minister P Chidambaram said in response to a query on whether government still expects Rs 40,000 crore for non-tax revenue from spectrum.

CDMA auction, which could have fetched government Rs 13,000 crore, has no bidders after two applicants Videcon and Tata Telservices withdrew their bids recently.

The government said that it has high hopes of getting good revenue from GSM spectrum auction starting November 12.

"As Finance Minister said, we have highest expectation for aggressive bidding and bring as much as possible to the kitty. Of course, our expectations are very high," said.

The Cabinet has allowed sharing of spectrum, or radiowaves, among telecom operators who have paid for it beyond 4.4 MHz (GSM) as per the decision will be allowed.

"If two service providers are there and both have paid for spectrum 4.4 Mhz, then no charge. But both TSPs will have to pay spectrum usage charge at the slab rate applicable on entire combined spectrum holding," Sibal said.

The Cabinet also decided on intra-service area merger. A company acquiring an operator, which was given spectrum at old rate of Rs 1,658 crore, will have to pay for radiowaves that the target company holds as per the price determined through auction starting November 12.

"If company which has got 4.4 (Mhz spectrum), not beyond 4.4 (Mhz spectrum), is going to be acquired and they got the licence based on entry fee, then in that case resultant merged entity will be required to pay to the government differential between entry fee and current auction determined price," Sibal said.

The Telecom Minister said the decision is applicable on companies that have spectrum below 4.4 Mhz and new set of rules will apply for deals that will happen after this financial year which is being formulated by Telecom Ministry.

"There has to be a policy on mergers and acquisitions on which DoT is working. At the moment we are implementing what we are required to do under the Supreme Court judgement. We are dealing with spectrum that was given at entry fee paid price from 2001 onward," Chidambaram added.

The Finance Minister further said that the decisions are limited to spectrum that has been released as result of cancellation of licences that will be auctioned.

GSM industry body COAI called this step a violation to licence agreement between telecom operators and government.

"We are in complete disagreement with todays decision.. Its violative to licence condition. Government has been saying that all the spectrum allocated was as per the rule. Now this U-turn is surprise," Cellular Operators Association of India Director General Rajan S Mathews said.

Industry experts said that decision to levy one-time fee on excess spectrum held by incumbents, is going to put pressure on the sector even further, particularly at a time when profits and margins being squeezed due to stiff competition and interest costs due to debts for 3G and BWA spectrum loans.

"The mechanism to conclude one-time spectrum fee is in itself contentious. Using 3G pricing as a benchmark for the spectrum auctions in November this year and future, has several underlined flaws," Partner in member firm of Ernst & Young Global Prashant Singhal said.