Trai favours flat SUC rate, but proposes weighted average formula

The Telecom Regulatory Authority of India (Trai) has proposed a new weighted average formula to calculate spectrum usage charge (SUC) for telecom operators, even as it said on Tuesday that a flat levy is the best option.

Trai added that a weighted average formula to calculate SUC is at best a temporary solution.

"While the optimal solution in the view of the Authority is to move to a flat rate regime, we are constrained to limit ourselves to examine the weighted average solution as suggested by Ld AG (the Attorney General) and proposed by DoT (the Department of Telecommunications)," Trai said in a statement.

Trai proposed an alternative weighted average formula to calculate SUC, to replace the existing formula used by DoT.

The new formula takes into account the 'bid values' of each bandwidth to the existing weights. The reason cited by the regulator is that sole quantity of airwaves is not a sufficient weight and revenue arising out of each bandwidth should also be taken into account. However, since revenue segregation cannot be done, the bid amount paid by an operator was indicative of the revenue expected from that bandwidth.

"As bid values are a reflection of how the TSP (telecom service provider) values the band, taking into account market determined price based on bid values might lead to a result that more closely approximates the result, were it possible to segregate revenues as envisaged by the NIA (notice inviting applications)," the Trai has said.

NIA is the document containing auction rules.

A senior Trai official said that a flat SUC "is our first choice", and explained that the main reason was that it was difficult to segregate revenue arising out of different bands of airwaves.

Trai has made its suggestions to the DoT which will forward it to the cabinet for a final approval.

Currently, telcos are charged different rates based on a complicated weighted average formula which takes into account non-auctioned or auctioned spectrum, and further, the specific SUC applicable to the auction from which airwaves were bought. The 4G spectrum bought in 2010 - currently held mainly by Jio and Airtel - is kept out of this formula and is charged at a flat 1 per cent of annual revenue.

In 2013, Trai had proposed a flat 3 per cent SUC across all bands of spectrum - auctioned or not - which could be gradually brought down to 1 per cent, as it was difficult to distinguish the revenue accruing from different bands of airwaves. It had suggested raising the 2010 BWA spectrum rate also to 3 per cent. All telcos bar Jio had backed Trai's suggestions.

All telecom operators, who currently pay SUC as per the weighted average formula, had been in favour of a flat SUC of 3 per cent, citing the problem with revenue segregation, especially since 4G services are being offered using different airwaves. This, they felt, could lead to arbitration.

But Mukesh Ambani-owned Jio, which is still to launch commercial services, had opposed the move, saying revenue segregation was possible.

The telecom department had acknowledged the challenges to revenue segregation but was unable to make any changes towards a flat SUC after the attorney general's view that the fee for airwaves bought in the 2010 sale cannot be altered due to the rules of that spectrum auction.

Consequently, the telecom department decided to include the BWA spectrum bought in 2010 also in the weighted average formula to reduce the arbitrage possibilities. This formula was considered by the cabinet which decided to send it back for Trai's views.