Proposes new formula; Telecom Commission defers decision due to lack of consensus

The Finance Ministry has proposed to impose a higher spectrum usage charge on mobile operators than what the telecom regulator had suggested.

Compared with a 3 per cent flat charge proposed by the TRAI, the Department of Economic Affairs has suggested a formula which arrives at the fee based on the weighted average of what the telecom companies pay currently and what the TRAI has proposed.

While the TRAI had proposed to bring in a uniform fee irrespective of the quantum of spectrum held by the operator, the Finance Ministry wants to keep the existing escalating system of charging usage fee, but in a new avatar.

For example, an operator with 6.2MHz of GSM spectrum currently pays 4 per cent of its annual revenue as spectrum usage charge.

If this operator acquires additional spectrum in the coming auction to take its total holding to 8.2 MHz, then it would have to pay 5 per cent of its annual revenue under the existing system. TRAI had proposed to bring this to 3 per cent.

Under the new formula proposed by the Finance Ministry, this would work out to be 3.7 per cent. Though the formula proposed by the Ministry would lower the net impact on operators compared with the existing slab rate, operators would have liked to pay the lower uniform fee as proposed by TRAI.

The Ministry’s proposal was discussed on Tuesday by the Telecom Commission, but a decision could not be taken due to lack of consensus. The Commission will meet again in 2-3 days. The Cabinet has directed the Department of Telecommunications (DoT) to fix the usage charge before the next round of spectrum auction scheduled for February.

Therefore, any delay in deciding the usage charge could delay the auction.

The Telecom Commission is grappling with three options. The first is to go with what TRAI has proposed—make it uniform 3 per cent for all operators. But this has been opposed by Reliance Jio as it pays only 1 per cent currently. The Finance Ministry is also not in favour of this proposal because it would lead to a revenue loss of around Rs 650 crore a year.

The second option, proposed by the DoT, is to fix a uniform rate of 5 per cent only for spectrum sold in the next auction. If an incumbent operator with existing spectrum buys additional spectrum in the next round of auction, then it will have to pay a weighted average of the new and old rates. This would take the maximum charge to 5.67 per cent for an operator which holds more than 8.2 MHz. Operators which do not participate in the auction will continue to be charged on the existing slab rate of 3per cent to 8 per cent. The third option is what the Finance Ministry has proposed.

(This article was published on January 7, 2014)
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