EGoM tweaks usage charges to boost 2G spectrum auction

Seeking to boost participation in the 2G spectrum auction next week, the empowered group of ministers (EGoM) on telecom, headed by finance minister P Chidambaram, on Monday decided to fix the spectrum usage charge (SUC) at 5 per cent of the annual gross revenue (AGR) of the purchasing company for new radio waves.

However, for spectrum acquired earlier, telecom operators will continue to pay the weighted average of their existing SUC. At the same time, the SUC being paid by broadband wireless access (BWA) operators remains unchanged.

The EGoM recommendations will now go to the union cabinet for final approval – which is likely to be given at the weekly cabinet meeting on Thursday, as the auction dates have already been firmed up.

Telecom Minister Kapil Sibal told journalists after the empowered group meeting, ''The SUC shall be at the rate of 5 per cent on new spectrum … the big (established) players will benefit as well as small players. We expect the auction to be a huge success [after the decision] as it lowers the financial burden of big telecom operators and does not adversely impact new operators.''

Under the recommendations, the SUC for BWA operators will remain at 1 per cent - but they will have to pay an SUC of 5 per cent for new spectrum that they acquire. These companies will have to separately report revenues earned from their original BWA spectrum and the new spectrum.

''A successful auction means greater investment in the sector, results in efficiency of service and lowering of tariffs … ultimately consumers have to be benefited,'' Sibal said.

Under the current regime, SUC varies from 3 per cent to 8 per cent for GSM operators. The GSM and BWA lobbies have been at loggerheads over the SUC issue, with the former demanding that there should be a uniform charge, while the latter has been opposing any tinkering with the prevailing rate.

Telecom secretary M F Farooqui said the revised SUC structure would have no impact on the government's revenue.

''The current levels of revenue will be protected. Operators are having spectrum at different values. When we take weighted average, it stands at 4.8 per cent. Now it will be fixed at 5 per cent for new spectrum. The BWA operators will have to report separate revenue flows from existing spectrum and newly acquired spectrum,'' he said.

Reacting to the EGoM's decision, the Cellular Operators Association of India (COAI), which represents the GSM lobby, said it failed to address the critical issue of a discriminatory SUC regime, and demanded that the SUC for all operators offering voice, video and data services should be uniform, as suggested by the Telecom Regulatory Authority of India.

''Although the suggested move could benefit the telecom operators marginally, serious issues still remain unanswered. Failure of the EGoM to transition to a flat rate of SUC is a failure to address both the anomalies as well as the disincentives for operators on acquiring more spectrum ...

''The application of a weighted rate would not only complicate and irrationalise the levy structure, but would also act as a disincentive to mergers, acquisitions and spectrum sharing and trading. In turn, it will affect the potential investments to the sector, which is already facing hurdles presently. Opportunities for arbitrage that exist between different bands and technologies would continue to exist,'' said COAI director-general Rajan S Mathews.

Similarly, Vodafone's India's resident director T V Ramachandran, who also chairs the national telecom council of the Associated Chambers of Commerce and Industry of India (Assocham), expressed disappointment that the EGoM's rate was higher than the level recommended by TRAI. ''Industry is disappointed that the SUC has been decided as high as 5 per cent for auctioned spectrum whereas TRAI had recommended 3 per cent. This will further add financial burden on the industry,'' he said.