Relief for telcos as govt scraps spectrum usage charge ahead of 5G auction

Nomura estimates annual saving of Rs 1,400-3,000 crore for telecom firms

The government has removed spectrum usage charge ahead of the 5G airwave auction in a move that will enable companies save costs in spectrum purchase.  

“For spectrum acquired through auctions held after 15-09-2021 in different access spectrum bands, no SUC shall be charged,” the department of telecommunications said in its order on Tuesday.

The decision to scrap SUC for spectrum acquired in auctions after 2021 was a part of telecom reforms package that was unveiled last September. However, a formal order was only issued now.

Currently, SUC is levied at differential rates on spectrum acquired through auctions since 2010. A weighted average of spectrum holding and rates is considered for calculation. The SUC is then imposed as a percentage of adjusted gross revenue subject to a minimum of three per cent. This rate has now been dropped in the latest order.  

While companies will still be charged SUC, the average rate would come down in case a telecom company increases the quantum of spectrum holdings in the auction next month, say industry sources.

Airtel, Jio and Vodafone Idea paid SUC at a rate of 3.6-3.7 per cent of total adjusted gross revenue in fourth quarter FY 22.

In its report last week Nomura Global Markets Research the pan-India 100 MHz spectrum in 3,300 MHz band would entail around Rs 2800 crore annual spectrum outgo for 20 years. Telecom companies can also make full or part upfront payment to reduce the overall outlay on spectrum. Further the scrapping of SUC for future spectrum auctions could lead to Rs 3000 crore in annual cost savings for Reliance Jio and Bharti Airtel and Rs 1400 crore for Vodafone Idea in the longer term, it said.

While the government has eased bidding norms including relaxed payment terms, brokerage IIFL Securities sees selective bidding by companies.

“While supply is abundant, the government has not cut TRAI’s proposed reserve prices despite telcos’ assertion that these were still high. We see telcos bidding only for 4 of the 10 bands and spectrum should be sold at base price,” IIFL said.

Industry body Cellular Operators Association of India (COAI) welcomed the government order. “The order will provide clarity to the telecom service providers for the upcoming auction,” said COAI director general S P Kochhar.