The Telegraph
Tuesday , January 28 , 2014
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Flat fee of 5% for new spectrum

New Delhi, Jan. 27: An empowered group of ministers (eGoM) on telecom today decided to impose a flat 5 per cent spectrum fee on all fresh 2G airwaves to be auctioned next month.

However, spectrum use fee (SUC) on older spectrum sold or allocated to telecom firms will continue to be charged at a differential rate of 3-8 per cent, depending on how much spectrum a firm holds.

“For all new spectrum, which will be sold, it will be 5 per cent but it will be charged at weighted average. There is no protection of revenue. In this process, if the government loses some revenue, doesn’t matter. Ultimately consumers have to benefit,” telecom minister Kapil Sibal said after a meeting of the ministerial group.

Though the eGoM is authorised to take decisions on behalf of the cabinet, Sibal said these decisions would still go to the cabinet for final approval.

Vodafone, Bharti, Idea, Telenor and Reliance Jio are among the eight firms bidding for spectrum in auctions next week.

The eGoM also decided to accept the attorney-general’s advice that spectrum use fee for broadband airwaves used for 4G telecom services should remain at 1 per cent.

The Telecom Commission, which met on Saturday, had recommended three options for SUC to be charged on 2G airwaves — i) a flat SUC of 3 per cent on all spectrum now being held or to be bought in the future as recommended by the telecom regulator; ii) continue to charge differential SUC of 3-8 per cent for all old spectrum and charge 5 per cent for all new spectrum bought by telecom firms; iii) continue to charge the differential user fee for old spectrum and charge 3 per cent for all new spectrum bought by telecom companies.

Officials said the second, or the 5 per cent option, was supported by the finance ministry, while the telecom department favoured the third option.

“The decision on SUC is marginally useful for the industry,” Rajan S. Mathews, director-general of the Cellular Operators Association of India, said.

“The eGoM’s decision to charge 5 per cent for all the new spectrum is way too high than the global average SUC of 1 per cent.”

He said it would complicate the issue as operators would now have to calculate the average of auctioned and administratively assigned spectrum to determine SUC. He added that as their demand for a flat SUC rate was not met, there may not be aggressive bidding in the auction.

Vodafone resident director and Assocham’s national telecom council chairman T.V. Ramachandran expressed disappointment at the decision, saying the rate is higher than the level recommended by the regulator.

“Industry is disappointed that the SUC has been decided as high as 5 per cent for auctioned spectrum whereas Trai (the regulator) had recommended 3 per cent. This will further add financial burden on the industry,” Ramachandran said. SUC should have been set at 1 per cent to ensure a level-playing field with holders of BWA spectrum, he said.

Analysts felt the move was good but the government should eventually move towards a single flat rate not only for 2G spectrum but all spectrum as this would be less complicated.

Hemant Joshi, partner, Deloitte, Haskins and Sells, said: “Clarity brought in by the government on SUC before the auction is a welcome move. Currently, incumbents are paying around 5-6 per cent of gross revenue as SUC. In the current auction, SUC has been kept at the same rate as previous average paid. The eGoM should try to move towards a flat spectrum charge over a period of time considering technology neutrality.”