New Delhi: India’s department of telecommunications or DoT plans to quadruple the share of revenues to be paid as fees to the government by wireless phone firms for the initial allocation of spectrum, or wireless frequencies in a move that will increase the money collected from such revenue sharing, likely affect the profitability of telcos and, according to one DoT official, encourage companies to get the most they can from existing spectrum before asking for more.
The extra amount the government would earn through this, and the possible losses for telcos, could not immediately be assessed.
The rise in percentage of revenues to be shared to 8% for operators using up to 5MHz of radio spectrum will affect all Indian phone firms, irrespective of the technology (GSM or CDMA) used for delivering phone services. GSM and code division multiple access, or CDMA, are rival platforms for offering phone services.
Current norms set the share of revenues for frequency rights at 2% for a 4.4MHz allocation for GSM phone firms and 2% for 5MHz of spectrum for CDMA phone firms. This rises to 6% for 15MHz used by firms using both technologies.
Telecom service providers such as Bharti Airtel Ltd and Reliance Communications Ltd or RCom seeking additional spectrum to serve more phone users may be charged 1% of their revenues for each MHz of radio spectrum.
“On this basis, the annual spectrum charges for 10MHz spectrum would work out to 13%, and for 15MHz it would be 18%,” according to a DoT note issued by the Telecom Commission on 10 January.
In 2006-07, wireless telecom firms operating under the current 2% revenue share formula paid nearly Rs10,870 crore in fees to the government, according to trade body Association of Unified Telecom Service Providers of India.
Calls to the office of Manju Madhavan, member, finance, of the commission, were not returned until late on Friday. Madhavan headed a committee to decide on how to revise spectrum charges to reflect its economic value. In October, Mint first reported that the government is considering options to increase the share of revenues for spectrum rights from the current 2%.
This decision, awaiting approval of telecom minister Andimuthu Raja, will mean that new telecom aspirants including Videocon Industries Ltd and real estate firm Unitech Ltd will have to promise to pay 8% of annual revenues to the government for airwaves up to 5MHz, allocated when they start services.
“If they (DoT) want the spectrum charges to reflect its true economic value, holding an auction is a much better way; why is the government not doing it?” asked the chief regulatory officer at a phone firm, who did not want to be quoted.
The DoT committee, which included Madhavan and member, technology, K. Sridhara and member, services, G. S. Grover, suggested a higher revenue share by “drawing a comparison between the spectrum charges being paid by the four leading operators, and the expenditures they make on items like marketing, sales, publicity and network operations,” said the 10 January note.
The committee also found that even as the “spectrum charges ranging between 2.02% and 2.52% of the operators’ gross revenues in 2006 were considered a painful burden, they spent 4.46% to 49.7% of revenues on marketing and sales during that period,” the DoT note added.
One regulatory expert said the DoT move was flawed. “You have operators offering free calls within their own networks, thereby increasing the spectrum use but showing no increase in their revenues,” said telecom consultant Mahesh Uppal. A DoT official who did not wish to be named said the higher share of revenues for more spectrum use could lead the firms to improve efficiency by means such as more base stations.