One-time fee may cost old telcos up to Rs 40k-cr

Operators say no option but to challenge it in court, decision on refarming deferred

Incumbent telecom operators would have to shell out Rs 37,000-40,000 crore as a result of the decision of the empowered group of ministers (EGoM) on telecom to tweak the structure under which operators must pay prospectively for spectrum beyond 4.4 MHz in GSM and 2.5 MHz in CDMA.

The increase, if not reversed by the Cabinet (which will take the final decision), has led the operators to say they have no option but to challenge the decision in court.

Just a day before the operators have to put in their applications to bid in the 2G spectrum auction, the EGoM has also decided to defer a decision on the contentious issue of spectrum refarming in the 900-MHz band.

EGoM TWEAKS THE EARLIER DECISION

• Operators to pay one-time fee for spectrum in excess of 4.4 MHz prospectively
• For spectrum beyond 6.2 MHz they must pay retrospectively from July 2008
• Incumbent operators have to fork out an additional over Rs 10,000 crore. Earlier, they had to pay Rs 27,000 crore
• One-third of the additional burden would be borne by the state-owned MTNL and BSNL, say analysts

Taking cognisance of the Attorney General (AG) of India’s opinion, which it had rejected earlier, the EGoM today decided operators with spectrum beyond 6.2 MHz in GSM must pay a one-time fee retrospectively from July 2008 for that portion. Sources say the price operators must pay from July 2008 either could be indexed to the spectrum price of 2001 or the new auction price could be discounted based on the prime lending rate of a state-run bank. However, one-time fee would be paid by all operators with spectrum beyond 4.4 MHz.

The AG had in his initial opinion said the one-time fee be charged from 6.2 MHz from July 2008. The EGoM has now met his opinion halfway.

The move, if cleared, will add to the burden of operators, including Bharti Airtel, Vodafone, Idea Cellular, Reliance Communications, Tata Teleservices and the state-owned BSNL and MTNL, who would have had to fork out Rs 27,000 crore as one-time fee based on the EGoM’s previous decision.

Speaking to journalists after the EGoM meeting, Communications Minister Kapil Sibal said, “We intend to take a decision on the refarming issue prior to the start of auction (November 12), hopefully, a week before the start. Today, we did not have enough time for this.”

Rajan Matthews, director general of Cellular Operators Association of India, said, “We have no option but to challenge it in court. As a result of this huge outgo and the uncertainty about refarming still looming, while the number of operators who will bid for the upcoming 2G auction might be the same, they will be forced to reduce the number of circles they were earlier planning to bid in. Surely, they will not bid aggressively.” He said the burden on incumbent operators, members of his association, could go up from Rs 18,000 crore to Rs 34,000 crore.

Prashant Singhal, partner, Ernst & Young Global, said, “Our estimate is the burden will go up by Rs 7,000 crore to Rs 10,000 crore. Considering the huge debt burden on telcos, this is not good news.”