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In a move that will benefit Broadband Wireless Access (BWA) spectrum holders, Mukesh Ambani’s Reliance Jio the most, an empowered group of ministers (EGoM) on Monday decided to keep the rate of spectrum usage charge (SUC) for BWA companies unchanged at one per cent of telcos’ adjusted gross revenue (AGR). In its decision, the EGoM went against the recommendation of the Telecom Regulatory Authority of India (Trai) that the SUC rate be set at a uniform three per cent of AGR across spectrum bands and technologies.
SUC is the portion of their revenue telcos share with the government as a fee for the spectrum they hold. The EGoM decision will now be sent to the Cabinet for final approval.
Incumbent GSM operators like Vodafone, Idea Cellular and Bharti Airtel, which were hoping after Trai’s recommendation that a uniform three per cent SUC rate would bring down the quantum of their outgo, might be disappointed, as the EGoM decided to charge SUC from these players at a weighted average of the existing rate. At present, depending on the quantity of spectrum they hold, incumbent players pay between two per cent and six per cent of their AGR as SUC. A weighted-average method is unlikely to substantially bring down their payments.
Bharti Airtel, which operates 4G services in four circles and has licences in another four, will benefit from the decision to keep the SUC rate unchanged for BWA operators. However, bulk of its revenue comes from 2G and 3G services and, analysts say, a rationalisation in SUC rate for these would have helped the company more.
For operators bidding for spectrum in the coming auction and onwards, the SUC rate has been fixed at five per cent — much higher than the three per cent suggested by Trai. However, those operators that already have some spectrum in the 900 and 1,800-MHz bands and acquire more in the coming auction will have to pay the weighted average of SUC. For instance, if an operator holds eight MHz in the Delhi circle and buys another five MHz in the auction, the rate at which it pays SUC will come down from six per cent to 5.6 per cent.
The GSM players, led by the Cellular Operators Association of India (COAI), which had supported the regulator’s suggestion of a uniform rate for all, might be unhappy with the EGoM decision. They had been arguing the SUC rate for Reliance Jio should be raised from one per cent to three per cent, so that a level playing field could be created.
That was because Reliance Jio had now been allowed to use its BWA spectrum for offering voice services as well. Under its notice-inviting application (NIA), the company had been allowed to offer only data services.
On the other hand, Reliance Jio, which is to soon launch pan-Indian 4G services, has fought back publicly, saying the NIA on the basis of which it had bid BWA spectrum clearly said SUC would be one per cent, so it was not legally tenable to change the rate. The Attorney-General of India, whose advice the Telecom Commission had sought, had also agreed with the company’s view.
Speaking after the EGoM meeting, Communications & IT Minister Kapil Sibal said: “Ultimately, it is the consumer that needs to benefit. It will not affect new players. The government will not lose revenue and there are no big gainers or big losers among telcos.” The Telecom Commission had been divided on the issue, with a few of the key members supporting the three-per-cent regime.
Allaying the finance ministry’s concern that the SUC decision might hit the government’s revenue, M F Farooqui, secretary, Department of Telecommunications (DoT), said the department would keep in mind “revenue neutrality and its maximisation” before moving to the new SUC regime. “The present level (2012-13) of revenue from SUC will be protected in the new structure. There will not be any loss for the government and it will benefit in the long term,” he said.
In 2012-13, the government earned Rs 5,689.88 crore from spectrum levy, an increase of 10.5 per cent from Rs 5,148.05 crore the previous year. At present, on an average, telcos share 4.8 per cent of their annual revenues with the government as SUC.
The GSM operators appeared peeved on Monday. COAI Director-General Rajan Mathew said: “The move is especially tailored to benefit 4G operators, which can now offer voice services as well. There is no level playing field. The new method has little benefit for GSM operators. This regime will discourage mergers & acquisitions and transparency. It will even push operators into misreporting their revenues.”
Experts also agreed that the move would be a big benefit for Reliance Jio. “This will definitely help Reliance Jio, especially as it takes time to make money in its initial years,” said Romal Shetty, head of telecom practice, KPMG.
Meanwhile, the Department of Telecommunications (DoT) has extended the date for withdrawal of bid applications for the February auction by one more day to January 28. Operators had earlier asked the government to sort the SUC issue before the last day for withdrawal from the auction. The EGoM decision was based on the suggestions of the Telecom Commission, which had given three options after analysing Trai’s views. The alternatives were that SUC be fixed at five per cent weighted average, three per cent weighted average or no change be effected to the existing slab-based structure.
CLEARER SIGNALS
5% OF AGR
For fresh 1,800-MHz and 900-MHz spectrum acquired from auctions in February and onwards
WEIGHTED AVERAGE OF EXISTING SUC RATE
For existing spectrum held by operators (No minimum or maximum limit, companies to pay actual weighted average)
Effect: Companies like Bharti Airtel and Vodafone to benefit marginally in the circles where they have high spectrum holding
1% OF AGR
No change in SUC rate for holders of BWA (2,300-MHz band) spectrum.
Gainers: Companies like Reliance Jio and Tikona Digital
DIFFERENTIAL PAYMENTS
Companies with spectrum in different bands to separately report revenues from each spectrum band and pay SUC accordingly
Example: Bharti pays SUC at 1% of AGR for its BWA spectrum and at a weighted average for spectrum in other bands
