Spectrum Usage Charges should provide relief for India's telecom operators

Just in time for next week’s telecom spectrum auction, the Empowered Group of Ministers (EGoM) has just approved a spectrum usage charge (SUC) regime of 5 per cent of the annual gross revenue on all the new airwaves acquired in the upcoming (and future) auctions. Existing telecom operators will have to pay the weighted average of their existing SUC bands, plus 5 per cent of the revenue from any new spectrum.

As the Government currently receives a pan-India average SUC of 4.8 per cent on airwaves allocated till date, I expect there will be no adverse impact on existing fiscal revenue. In fact, with telecom service revenue growing healthily again, government SUC revenues should go up.

There is a possible complexity, though. Revenue segregation could be tricky when customers are being provided services which they could technically access over a variety of networks in the same circle, using different spectrum bands, each of which attract different SUC (eg the BWA SUC is 1%). For example, I could pay Rs 100 for a video download which I might have received over a 3G network or a BWA network, depending on which network my device was connected to at the time. Complications may then arise over whether the operator should therefore pay Rs 1 or Rs 5, or another figure, as an SUC for the revenue.

Updated or defined SUC regimes have not been specified for some conditions, including those below:

• Spectrum bought in Nov’12 and Mar’13 auctions

• Spectrum to be acquired through M&A (we may expect this when the M&A guidelines are published)

• Spectrum bought through trading/ sharing route (we may expect this when such options are approved)

Although the above areas remain open, the decision on SUC finally provides policy clarity from a long-term perspective and will have a positive impact on the industry.

What does it mean?  Well, the decision favours larger players as they are continuously looking at opportunities to increase their present spectrum holdings and acquire additional spectrum.  Also, the new policy in the near term is unlikely to have a negative impact on any of the industry players.

However, in the long run (after license renewal), operators who wish to run their business on less then 6.2MHz of spectrum in a circle will end up paying a higher SUC compared to the present regime, as the current rates for such holdings are below 5%.

The industry is waiting with baited breath for next week’s auction.  It is shaping up to be an interesting one to keep an eye on!

The thoughts and opinions shared here are of the author.