Airwave fee cut to 5%, newbies get a sweet deal

Tags: News

Rel Jio, Trikona to pay just 1%; govt says policy will lower tariff

The government has capped the spectrum usage charge (SUC) at 5 per cent on new airwaves acquired through auctions beginning on February 3. SUC is an annual levy charged on the gross revenue of telecom players.

Existing players will continue with the existing rates for spectrum already held but a weighted average will be taken into consideration while computing SUC for them.

Reliance Jio Infocomm of Mukesh Ambani and Trikona, both of which hold broadband wireless access (BWA) spectrum to roll out 4G services, will continue to pay 1 per cent SUC.

A ministerial group headed by finance minister P Chidambaram took the decision on Monday. Later briefing newsmen, telecom minister Kapil Sibal conceded that the government would lose out in the first few years on revenues with SUC capped at 5 per cent.

Currently, the spectrum charges vary from 3 to 8 per cent, depending on how much spectrum a company holds, and the time and rate at which the airwaves have been acquired.

The government seems to be banking on spread of telecom services, spectrum usage and rollout of high-value data services to increase revenues from SUC.

The immediate losers could be Bharti Airtel, Vodafone and Idea Cellular, which hold the maximum spectrum, as their spectrum licences are coming up for renewal within a year. But their outgo on spectrum usage charge is likely to fall, given the 5 per cent charge on newly acquired airwaves.

A clear winner will be Reliance Jio Infocomm, as it will pay only 1 per cent SUC as per the contractual obligations in the acquisition of on 2300 mhz BWA spectrum. A big unresolved issue is the spectrum usage charge applicable on the airwaves acquired either through trading or mergers and acquisitions.

Even as he conceded that the government would lose revenue, Sibal said both small and big telecom companies would benefit and the industry should grow faster now.

He said tariffs should fall further and participation in the upcoming spectrum auctions should be good. “Auctions will be very successful,” Sibal said.

The ministerial group’s decision is not in sync with the uniform 3 per cent SUC recommended by the Telecom Commission for all, irrespective of the band, time of acquisition and rates paid for airwaves. The commission had given the ministerial group three options. The group opted for the 5 per cent cap option.

Though benefited to an extent, the GSM lobby led by the troika of Bharti Airtel, Idea Cellular and Vodafone is upset. On their behalf, Rajan S Mathews, director general of the Cellular Operators Association of India (COAI), criticised the government for not ensuring a level-playing field across the spectrum.

The lobby says that the 5 per cent SUC cap is way higher than 1 per cent prevalent globally. It was particularly cross because Reliance Jio Infocomm seems to have had its way, as BWA operators will pay only 1 per cent.

In a harshly-worded statement, COAI described the ministerial group’s decision as a ‘continuation of the discriminatory present SUC regime with marginal benefits for most telecom players.’

Analysts told news agencies that Bharti and Idea Cellular were charged SUC of 5.5 per cent of aggregate gross revenues in the second quarter, but now the payout might drop to about 4.1 per cent.

Others said Bharti held the maximum spectrum and would thus be the biggest beneficiary of the new SUC decision. As for 4G spectrum holders, Reliance Jio and Bharti will both benefit since SUC for them continues at 1 per cent.

Analysts said it appeared the ministerial group accepted the attorney-general’s recommendation and ignored COAI pleas to bring BWA spectrum holders on par with GSM firms.

Hemant Joshi, partner at Deloitte Haskins & Sells, told Financial Chronicle that there were several un-addressed issues even after the ministerial group’s meeting, especially with regard to SUC on traded spectrum or that acquired through mergers. Joshi said the government should not treat the telecom industry as just a ‘non-tax revenue earner’ when it contributed in a big way to GDP.

Joshi cited the upfront cash payment of 25- 32 per cent on acquiring 900 mhz and 1800 mhz would dent the companies’ cash flows, negating possible benefits. Interest costs and depreciation would add a burden on the industry.

But Mohammad Chow­dhury of PwC India said the existing players paying 8 per cent SUC would get relief. In the long term, the government’s revenues would also go up with industry revenues.

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