The Finance Ministry and the Planning Commission have opposed the proposal to charge one-time fee for the entire spectrum held by from incumbent telecom players.
The Ministry and the Commission have said that the proposed change could violate an existing contract between the Government and telecom companies, which could in turn hurt investor sentiments.
Cabinet note
The views are in response to a Cabinet note floated by the Department of Telecom expected to be taken up on Tuesday. The DoT has proposed to impose a one-time fee from all incumbent players for the remaining period of their licence.
Initially, the Telecom Commission had suggested imposing this fee on only those players which have more than 4.4 Mhz spectrum. But after the Supreme Court cancelled the licences of new players and ordered an auction, the Telecom Ministry proposed to charge a fee for the entire spectrum held by the incumbent operators.
The DoT has argued that the one-time fee was needed to maintain the playing field level between old and new players. It said that on one hand new players are being asked to buy spectrum through an auction on market-based price and on the other hand incumbent players were holding spectrum under the old pricing scheme.
The Finance Ministry – headed by the Prime Minister, Dr Manmohan Singh – has taken a view that this formula could be problematic. “The DoT argument of level playing field to be created for the new players by making the incumbents also pay the auction discovered price could be problematic due to the possibility of access to advanced technology and software and thereby higher efficiency and lower costs accruing to the new players,” said a Finance Ministry note to DoT.
The Ministry has suggested that incumbents could be given the option to use the existing spectrum up to 4.4 Mhz or up to 6.2 Mhz without any additional fee but restricted to offering only 2G technology based services. If the operators want to use the spectrum to deploy higher technology then they should be asked to pay.
Level-playing field
The Planning Commission has also backed this stating that the desire to create a level playing field cannot be transformed into a search for a “Procrustean Bed” in which all supposed advantages of incumbents are sought to be equalised.
“All industries see entrants entering at different times. New entrants always incur different costs, and very often face different tax environment, from what the incumbents faced,” the Planning Commission said. It added that if at all a fee has to be charged then the original plan of asking operators with more than 4.4 Mhz should be asked to pay up. If agreed to, then this formula will benefit Reliance Communications and Tata Teleservices as they hold only 4.4 Mhz spectrum as of now. Under the DoT formula, these two companies will have to pay a huge amount for the balance 16 years.
BSNL, MTNL may be exempted
The Department of Telecom has proposed to exempt state-run telecom companies Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd from paying the one-time spectrum fee.
According to the Cabinet note drafted by the Department, the two companies may be given a waiver considering their poor financial situation. The Department is preparing a separate note on the financial implications for the exchequer if this waiver is allowed.
However, private players are opposing the move on grounds that this will disturb the playing field. “BSNL and MTNL are competing in the same market as private players so how can the Government ask one set of players to pay Rs 18,000 crore and charge nothing from the other,” said an industry representative.
According to DoT proposal, all existing players will have to pay a fee for the entire spectrum held for the remaining period of their respective licences.
Rs 5,236 crore more for Defence
The Cabinet Committee on Investments is likely to consider a proposal to clear Rs 5,236 crore to fund spectrum vacation by the Defence forces.
This is in addition to Rs 8,098 crore already cleared in December 2009. The Department of Telecom has moved a Cabinet note seeking fresh funds to get more spectrum from the Defence. This will be crucial for the upcoming auction as the Department wants about 55 Mhz of spectrum from the Defence forces.
If the armed forces agree to give up more spectrum in lieu of the fresh funds, the DoT will be able to accommodate more players. Under the current proposal, the DoT is planning to sell eight slots of 1.25 Mhz each. This will be enough to accommodate 2-3 players even though as many as six players are set to lose their licences in September.