Licence Fees Not Part Of Cost: Trai

The Telecom Regulatory Authority of India (TRAI) has indicated it will not include licence fees in input costs while computing telecom tariffs. This will come as a big blow to cellular and basic telecom service providers, for whom the licence fees is a high 50-60 per cent of project costs.

The authority is yet to take a decision on the issue, but has indicated its approach in its recommendatory paper on telecom tariffs. It is also likely to recommend an increase in the monthly rental and initial registration charges for basic telecom services. The recommendations will be published soon.

TRAI had published a White Paper on the methods used in fixing telecom tariffs eight months ago. It plans to hold public discussions on the recommendations before notifying them as final tariffs, sources said.

TRAI's decision to exclude licence fees from costs while computing tariffs emanates from its views on how telecom service providers bid these fees. A source said: "The licence fees are a percentage bid out of expected profits. These cannot be taken as costs. Besides, if the licence fees are included as costs, operators can bid anything, knowing it will be covered in tariffs."

Government sources said the Bureau of Industrial Costs and Prices (BICP) may also follow TRAI's approach. BICP is working on a viability report on cellular operators. It is expected to submit its report within a few months.

Cellular operators, which have together committed over Rs 20,000 crore as licence fees over the 10-year period, claim they are incurring a cumulative cash loss of Rs 400 crore a month. Most of this is due to licence fees and capital expenditure, the Cellular Operators Association claims.

The situation that basic telecom operators find themselves in is even more bleak. The six basic telecom service providers that have signed licence and interconnect agreements with the department of telecommunications, together have committed to pay almost Rs 28,000 crore in licence fees over 15 years. Almost half of this has been committed by the Maharashtra licensee, Hughes Ispat, which bid Rs 13,909 crore as licence levy for the right to operate services in the state.

Most basic telecom operators are under pressure on account of physical targets they have set themselves and the reluctance of financiers to take exposure in their projects. The operators are not allowed access to the lucrative inter-state long-distance market, and at the same time have build networks in rural areas that are zero-return investments.