Editorial- August -2016

The cabinet has approved the rates for Spectrum Usage Charges (SUC) for the forthcoming spectrum auctions. And based on the Telecom Commission’s (TC) recommendations, the cabinet decision states that for spectrum acquisitions in 700, 800, 900, 1800, 2100, 2300 and 2500 MHz band, the SUC will be 3 per cent of the AGR. The cabinet has also accepted TC’s recommendation that the method of simple weighted average rate (WAR) be followed in determining payable SUC for existing operators.

The telecom regulator, Trai has been a votary for the application of one single rate of 3 per cent of AGR irrespective of the band, quantity of spectrum held or the service provided (2G, 3G, BWA, LTE etc). But under the prevailing market circumstances, Trai has pointed out that a simple WAR based method will lead to revenue loss for the government.

Instead, in its recommendations of July 12, 2016, Trai had recommended the revenue based WAR method, which would lead to realizations approximating the current level.

Trai stated that since 80 per cent revenue come from 2G & 3G services and 20 per cent from BWA services, based on simple WAR method, the SUC rate would be 2 per cent as per DoT’s way of calculation; and if revenue based WAR is done, the rate of SUC would be 3.4 per cent. It also pointed out that the present level of revenue from BWA is even much lower than the assumed level of 20 per cent, therefore the actual SUC would still be higher than 3.4 per cent.

So, this allowance to the existing operators of a simple WAR method has revenue consequences for the government.

But this recommendation of Trai cut no ice with the DoT committee headed by Member (Technology) tasked with looking into this. It said it would protect existing revenue by treating SUC paid by operators during 2015-16 as floor amount and acknowledged in the same breath a loss of Rs 507 crore in SUC for the government, in the case of Bharti Airtel.

And Bharti Airtel will be the major beneficiary of this SUC regime for the spectrum auctions. Bharti Airtel is the leader with about 26.57 per cent (VLR based) of the market share in 2G & 3G subscriptions; it also has BWA spectrum through purchase in 2010 auction as also acquisition of BWA owning companies. The SUC for BWA is 1 per cent while that for 2G & 3G is payable at much higher slab rates. A simple WAR based averaging of 2G & 3G spectrum with BWA will yield for Bharti Airtel rich reductions in revenue liability. On the other hand, Reliance Jio, which has not even had a commercial launch, pays SUC at 1 per cent of AGR for BWA and if it participates in the forthcoming auctions, will have to pay a minimum of 3 per cent SUC. For details, read our story.