Telecom Commission suggests alternatives

An empowered group of ministers meets on Monday to take a final call

The Telecom Commission (TC) on Saturday suggested three options for the spectrum usage charge (SUC) rate but left it to the Empowered group of ministers (EGoM) on telecom, which meets here on Monday, to take a final call on the issue.

“We have decided to refer the matter to the EGoM and the ministerial panel will take a final decision after reviewing the three options we have suggested,” said Department of Telecommunications (DoT) Secretary M F Farooqui, also the chairman of the Telecom Commission, after its meeting on Saturday.

SUC is a portion of their revenues that telecom companies pay the government annually as levy for the spectrum they hold. Besides the three options, TC, the highest decision-making authority at DoT, also gave a reference to the original recommendations of the Telecom regulatory Authority of India (Trai).

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TC’s alternatives

• SUC at 3% of AGR with weighted average option
• SUC at 5% with weighted average option
• No change to the existing slab-base rates
• For BWA spectrum holders, weighted average formula may be adopted, or the existing 1% SUC slab could be followed

Aim

• To maintain revenue neutrality

Revenue loss for govt

• SUC at 3%: Rs 2,893 cr in absolute terms for the next 10 years
• SUC at 5%: Rs 917 cr over the next 10 years

Govt’s earning from SUC

• 2011-12: Rs 5,148.05 crore
• 2012-13: Rs 5,689.88 crore

First of TC’s three alternatives is in line with the Trai recommendation — that SUC be fixed at a uniform rate of three per cent of a company’s adjusted gross revenue (AGR). But TC wants the three per cent rate only for fresh spectrum; for the spectrum companies already hold, it has suggested a weighted-average formula for determining SUC.

TC’s second option is keeping SUC at five per cent of AGR, with a weighted average option. Alternatively, according to TC’s third option, the EGoM could even decide to keep the existing slab-based rates intact.

For broadband wireless access (BWA) spectrum holders, TC has suggested that either the weighted-average formula be adopted, or the existing one per cent SUC slab be followed. Meanwhile, Attorney-General G E Vahanvati, in his reply to a DoT query on SUC (January 21), has said that SUC for BWA operators should not be raised from one per cent to three per cent, citing possible legal implications. He has also opined that the second option, of SUC at five per cent, can be adopted.

According to analysts and industry insiders, the EGoM might like to go with the second option. However, Farooqui said one of the key parameters for deciding the new SUC rate would be maintaining the government’s annual earning from the SUC.

In a recent communication, the Department of Economic Affairs had said any change in SUC might be made to maximise the revenue realisation and create more fiscal space for achieving the various targets of the government, as SUC was a significant source of non-tax revenue to the exchequer.

In 2012-13, the government earned Rs 5,689.88 crore from spectrum levy, an increase of 10.5 per cent from the Rs 5,148.05 crore earned the previous year. According to previous discussions of TC, if SUC is fixed at a uniform three per cent, the government might incur a loss of Rs 2,893 crore in absolute terms over the next 10 years. At an SUC rate of five per cent of AGR, the government's loss could be about Rs 917 crore over this period.

TC did not take a call on SUC even after a two-hour meeting on Saturday. According to sources, this was due to difference in opinion among the members. A decision on the issue is crucial as it will have a direct impact on the auction of spectrum that starts on February 3. Telecom companies factor in SUC before bidding for spectrum.

The companies that have made applications for bidding in the coming round of auctions - including Bharti Airtel and Vodafone - have written to the Telecom Commission asking for a clarity before Monday. These telecom operators have the option of withdrawing their applications on or before Monday.