Ministers panel sets 5% usage charge for new spectrum

A ministerial panel on Monday fixed the spectrum usage charge (SUC) for new airwaves at 5 percent of the revenue of telecom operators in a bid to boost sales in the auction starting February 3.

New Delhi: A ministerial panel on Monday fixed the spectrum usage charge (SUC) for new airwaves at 5 percent of the revenue of telecom operators in a bid to boost sales in the auction starting February 3.

"The SUC shall be at rate of 5 per cent on new spectrum. The big players will benefit to that extent, small players will also benefit," Telecom Minister Kapil Sibal told reporters after the panel meeting.

Vodafone Resident Director and Assocham's National Telecom Council Chairman TV Ramachandran expressed disappointment at the decision, saying the rate is higher than the level recommended by the regulator.

Sibal said the government expects the auction to be a huge success after this decision as it lowers the financial burden of big telecom operators such as Bharti Airtel and Vodafone and does not adversely impact new operators. The SUC currently ranges from 3 to 8 percent for mobile operators.

"With greater investment in the sector and successful auctions, the consumer will benefit. Successful auction means greater investment in the sector, results in efficiency of service and lowering of tariffs," Sibal said.

The Empowered Group of Ministers (EGoM) headed by Finance Minister P Chidambaram decided that existing telecom operators will have to pay the weighted average of their existing SUC and 5 percent for new spectrum acquired.

The SUC is levied annually as a percentage of revenue earned from telecom services. For companies that hold broadband wireless access (BWA) spectrum, such as Reliance Jio Infocomm Ltd and Tikona, the fee is 1 percent.

The EGoM did not approve the Telecom Regulatory Authority of India's suggestion for a uniform SUC of 3 to 5 percent across sectors, which would have increased the charge for BWA holders.

"We have not made any amendment in any contractual obligations. BWA players will continue to pay 1 percent SUC and if they acquire new spectrum, they will have to pay 5 percent," Sibal said.

Telecom Secretary MF Farooqui said the decision will have no adverse impact on the government's revenue.

"The current levels of revenue will be protected. Operators are having spectrum at different values. When we take weighted average, it stands at 4.8 percent. Now it will be fixed 5 per cent for new spectrum," Farooqui said.

He said BWA holders will have to report separate revenue flows from existing spectrum and newly acquired airwaves.

"Industry is disappointed that the SUC has been decided as high as 5 percent for auctioned spectrum whereas TRAI had recommended 3 percent. This will further add financial burden on the industry," Assocham's Ramachandran said.

The SUC should have been set at 1 per cent to ensure a level playing field with holders of BWA spectrum, he said.

"The decision on SUC is marginally useful for the industry," Rajan S Mathews, Director General of the Cellular Operators Association of India, told the agency. "The EGoM's decision to charge 5 percent for all the new spectrum is way too high than the global average SUC of 1 percent."

He said it will complicate the issue as operators will now have to calculate the average of auctioned and administratively assigned spectrum to determine the SUC.

He added that as their demand for a flat SUC rate was not met, there may not be aggressive bidding in the auction. Mathews said he believes there will be "moderate bidding" for spectrum.

"Failure of the EGoM to transition to a flat rate of SUC is a failure to address both the anomalies as well as the disincentives for operators on acquiring more spectrum," Mathews added.

The Trai's recommendation for a uniform SUC has pitted GSM firms such as Bharti Airtel, Vodafone and Idea Cellular against Mukesh Ambani-led RJio.

The Telecom Secretary said continuing the higher SUC slab of 8 percent could have led to muted bids as in the previous two auctions.

"At higher SUC, if there were no bids received then that could have negative impact on revenue. If spectrum gets sold, then revenue will also increase. Companies will have to pay actual weighted average be it less than 5 or more," Farooqui said.

He said the Department of Telecom has received legal opinion on the merger and acquisition guidelines, which is being examined.

"M&A guidelines shall be published in a week," he said.

The government expects a minimum of Rs 11,300 crore in upfront payment from the upcoming auction of airwaves worth Rs 48,685 crore at the base price. Successful bidders can pay the remaining amount over a maximum of 10 yearly instalments.

In November 2012, bids worth Rs 9,407 crore were received for spectrum worth Rs 28,000 that was offered.

In March 2013, no GSM operators bid at the auction and only CDMA operator Sistema Shyam bought spectrum of about Rs 3,600 crore in eight of the 21 service areas.

For the February auction, eight telecom operators have applied to bid - Reliance Jio Infocomm, Vodafone, Airtel, Aircel, Tata Teleservices, Idea Cellular, Telewings (Uninor) and Reliance Communications.

Companies have until January 28 to withdraw their applications.

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