TC move checks arbitrage but no flat SUC as yet

THE Telecom Commission on Tuesday decided to adopt the weighted average formula, operator-wise, to calculate the spectrum usage charge and include the 2300 (BWA) MHz spectrum acquired through auctions in 2010 in the weight. Thus, the weighted average will be calculated between broadband wireless access (BWA) spectrum (rate 1%), the current SUC rate (5% for spectrum bought in 2014 and 2015 and slab rates before it) and the spectrum that will be acquired in future, which has been fixed at 3%.

While the TC’s decision removes the scope for arbitrage for operators having the BWA spectrum like Bharti Airtel, Reliance Jio Infocomm and Aircel by booking revenue accruing through 4G services in the lower band, it does not bring about a uniform SUC. Further, while theoretically it reduces the SUC payment of the three operators, in practice it does not. This is because the TC has adopted a revenue-neutral approach to prevent any loss to the government. This means operators will continue to pay the minimum amount they did in 2015-16. For instance, if the SUC of Bharti as a result of the change goes down to

R1,000 crore but it paid R1,200 crore in 2015-16, it will have to continue to pay the same. The only way Bharti or any other telco will see an actual reduction in its payout will be if their revenue increases. However, since a new player, Reliance Jio, is entering the market, it is obvious it will reduce tariffs, which would be followed by the incumbents. In this scenario their revenue will decrease but the SUC payout will remain intact.

A DoT official told FE that the government ear ned `7,000 crore through SUC in FY16. If the revenue-neutral approach was not applied, its earning this year would have come down by `500 crore. On not being able to move to a unifor m SUC, the official said that the purpose of moving towards a uniform SUC was to prevent arbitrage so to that extent the purpose has been achieved.

For operators like Vodafone and Idea, which did not acquire BWA spectrum in 2010 and if they do not buy any spectrum in the forthcoming auctions, nothing changes.

Telecom industry executives said that ideally the TC should have made the rate for all auctioned spectrum at 3% and added the weight of the administratively allocated spectrum as well the BWA.

The TC’s decision will now be sent to the Cabinet for a final approval within a week’s time.

Tuesday’s decision comes after attorney general Mukul Rohatgi’s legal opinion to the department of telecommunications (DoT) that while it cannot hike the SUC on 2300 (BWA) MHz spectrum acquired in the 2010 auctions from the current rate of 1% of the adjusted gross revenue of the operators, it can be included in the weighted average for mula. Earlier, the 1% rate for BWA was kept outside the weighted average formula. The need for a legal advice rose because barring RJio, all other operators had written to the government that they were not in a position to segregate revenues between BWA and other spectrum. Even a government appointed committee said the same.

Ideally, the TC had wanted to raise the rate of BWA to that of spectrum in other bands to bring about a uniform rate but the AG said that the 2010 Notice Inviting Applications did not provide the flexibility to the gover nment to raise the rates at a later date, something which the NIA of future auctions provided.

The scope for arbitrage was arising because with carrier aggregation, an operator can provide 4G services through 2300 MHz, 800 MHz as well as 1800 MHz bands. However, if the rates for them are not similar, there’s a possibility of booking revenues in the lower rate, in which case the government loses out on revenue.

For instance, an operator like Bharti Airtel has spectrum in 1800 and 2300 MHz, through which it provides 4G services. Its competitor RJio has spectrum in the 1800, 800 and 2300 MHz bands to offer 4G services. If the change would not have been brought about, for providing the same service, while Bharti would have paid an SUC at 5% for spectrum acquired in 1800 MHz, it would have to pay it at 1% for 2300 MHz. RJio would also have paid 1% for 2300 MHz and 5% for 800 and 1800 MHz.