Ending uncertainty

No immediate gains, but new spectrum formula welcome

The months-long uncertainty over the new rate at which Indian mobile telecom service operators should pay spectrum usage fees to the government is likely to see a welcome and much-awaited end soon. The Telecom Commission has made two significant recommendations. One, it has prescribed a weighted average formula for calculating the spectrum usage fee for all the different bands available to a telecom service provider. At present, the spectrum usage fee varies depending on the bands and the manner in which the spectrum has been acquired. For instance, spectrum allocated through administrative orders attracts an escalating charge linked to the usage pattern; the auctioned spectrum is charged at the rate of five per cent of the service provider's adjusted gross revenues; and the spectrum in the 2,300 MHz band auctioned in 2010 for broadband wireless access is levied a charge at the rate of only one per cent. The second recommendation of the Commission is that the usage fee for the spectrum to be auctioned later this year would be three per cent of adjusted gross revenues of telecom service operators. Even this rate would be included for calculating the weighted average formula for spectrum usage fee to be paid by an operator.

There is no doubt that the government over the last many years has allowed confusion and uncertainty to prevail over what the spectrum usage fee ought to be for different bands. Varying rates have also given rise to continuing lobbying by telecom companies either for reducing their own spectrum user charge or for bringing it in line with its rivals, who may be paying it at a lower rate. The absence of any apparent logic behind the sharply varying rates has only given an impetus to such corporate rivalry and lobbying. The Commission's recommendations will now be taken up by the Union Cabinet and the new spectrum usage charge regime should address many of these concerns. It is reassuring that the government did not succumb to the strong lobby pressure of enforcing a flat fee for all operators using all kinds of spectrum bands. A flat rate would have meant a bonanza for some operators and an extra burden for some others, which could have been challenged in a court of law. A weighted average formula is based on logic, as it respects the sanctity of the rate that was fixed at the time of allocating the spectrum and also links the levy to the extent of use of a certain spectrum band.

What is likely to disappoint the telecom industry is that even though on paper its financial burden on account of the spectrum user charge will decline, there would be no actual relief. This is because the government has protected its revenue from spectrum user fees at the current level of Rs 7,000 crore a year. Thus, even though the new formula will reduce the fee from an industry average of five per cent, there will be no immediate benefit for the companies since they would continue to pay the amount they paid last year. Telecom operators are justifiably upset over this aspect of the new formula. Hopefully, the weighted average formula would lay the foundation of a more stable regime for levying spectrum user charges in the future. And as promised, the rates for the spectrum auctioned after 2016 would be lower than three per cent bringing in real gains for the industry.