Telecom Commission sets base spectrum usage charge at 3% of telco’s revenue

The Telecom Commission, the highest decision-making body of the telecom sector, has decided to continue with its earlier model for calculating spectrum usage charges (SUC) using the weighted average, but with a condition that the annual charges for any operator will not be below 3 per cent of their gross revenues.

For new spectrum auctions, a flat rate of three per cent will be charged while for the remaining airwaves the weighted average method will apply.

The 3 per cent base rate would kick in if an operator's SUC fell below 3 per cent.

While the Telecom Commission has proposed to continue with the weighted average formula, the three per cent base rate would do away with the advantage that the pricing formula gives some new players whose levy works out to about 2.5 per cent of gross revenues while incumbent operators have to pay 3-4 per cent of revenues.

The 3 per cent floor would mean that the gap between incumbent operators like Airtel and newer player such as Reliance Jio would be smaller, creating a level-playing field among operators while also increasing the revenue of the government.

The government expects to garner Rs5,66,000 crore at the base price from the spectrum auction.

The Telecom Commission decided to overlook the recommendations of the Telecom Regulatory Authority of India (Trai) for calculating SUC incorporating the market-determined price and technical efficiency of a band.

The decision will now be placed before the cabinet for approval next week after which a notice inviting application (NIA) will be issued. After the issuance of the NIA, spectrum auction is likely to start in 45 days.

The SUC issue became complex due to a difference in rates for the 2,300 megahertz (MHz) band and other bands. SUC for the 2,300 MHz band is one per cent while it is higher for other bands.

Bharti Airtel, Aircel and Reliance Jio Infocomm won spectrum in the 2,300 MHz band in the 2010 auctions. As the SUC slabs are different for different bands, DoT wanted to simplify things by introducing a weighted-average formula.

The decision led to SUC for Reliance Jio being 2.88 per cent, Aircel 2.83 per cent and Airtel 3.8 per cent.

However, with the panel suggesting a new clause of a minimum three per cent SUC, Reliance Jio will have to pay 3.05 per cent, Aircel three per cent and there will be no change for Airtel. Reliance Jio's 3.05 per cent is because it has spectrum sharing and trading agreements.

The decision has no impact on Vodafone, Idea Cellular and other companies, which do not hold spectrum in the 2,300 Mhz and 2,600 Mhz bands that were auctioned in mid-2010.

Vodafone pays around 4.8 per cent SUC and Idea 4.5 per cent.

SUC, one of the many levies telecom operators pay to the government, has been a bone of contention. Telecom companies have been asking for a uniform charge across bands, given the difficulty in calculating separate charges, with multiple operators offering data services on various bands.

The SUC now varies from five per cent to one per cent across bands. The government gets around Rs7,500 crore annually from SUC and it will increase after the new method kicks in.

"Though SUC rates will come down, the actual realisation will increase with fresh spectrum purchase. Gradually, our effort is to achieve a three per cent uniform rate and in future we may even go lower as recommended by Trai," the source said.