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One-time fee boost for telecom firms

Ministerial panel recommends the fee be levied on spectrum above start-up 4.4MHz for incumbent operators
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First Published: Tue, Oct 09 2012. 12 24 AM IST
The cabinet is expected to take a final decision on 19 October on the suggestions of the empowered group of ministers. Photo: Mint
The cabinet is expected to take a final decision on 19 October on the suggestions of the empowered group of ministers. Photo: Mint
New Delhi: The government stands to make about Rs.80,000 crore in the forthcoming sale of second-generation (2G) telecom spectrum from the auction of frequencies as well as one-time fee payments from incumbent operators, two senior department of telecommunications (DoT) officials said.
The one-time fee will be based on the price of spectrum discovered in the auction.
The empowered group of ministers (eGoM), headed by finance minister P. Chidambaram, recommended that the fee be levied on spectrum above the start-up 4.4 megahertz, or MHz, (2.5MHz for CDMA) for incumbent operators, the officials said. This would net the government a minimum of around Rs.27,000 crore, based on the reserve price for the spectrum, they said. A final decision will be taken by the cabinet, which is expected to meet on 16 October. The auction is expected to begin 12 November.
On 3 August, the cabinet decided that the reserve price for spectrum in the GSM band would be Rs.14,000 crore for 5MHz and Rs.18,000 crore for spectrum in the CDMA band. This translates to a minimum of around Rs.50,000 crore from the auction, one DoT official said.
For the one-time fee, the per-MHz price per year for the spectrum will be arrived at by taking into account the 20-year validity period. As per the eGoM decisions on Monday, the incumbent operators will have to pay for the spectrum they hold above the start-up 4.4MHz for the remaining period of the validity. That this charge will only be with prospective effect enthused telecom investors, who seem to have been expecting a heavier burden.
Explaining the rationale behind diverging from attorney general G.E. Vahanvati’s recommendation to charge for spectrum above the contracted 6.2MHz, DoT officials said that if that had been accepted, then operators who have not received the contracted spectrum would have to be given the additional airwaves at no extra cost.
“It is a very complicated issue, and with all the complexities involved in the given situation, we have done our best to bring about a level playing field by bringing everyone at par. Those who have been given start-up spectrum before will have to pay for all the additional spectrum they have,” the official said.
The decisions of eGoM and the date of payment are effective based on the cabinet’s final approval.
The one-time fee will likely be payable in equated yearly instalments with the upfront payment being approximately 33% for GSM and 25% for CDMA operators. The one-time fee payment will also be applicable to government-run Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd.
The government is also looking at adjusting the Rs.1,650 crore entry fee paid by the telcos that will lose their licences due to the 2 February Supreme Court ruling against the payout, if the telcos win spectrum in the coming auction. However, this adjustment or refund will be dependent on the outcome of the ongoing investigation of the alleged 2G scam.
“If there has been any wrongdoing on the part of the company, then there can be no refund,” another senior DoT official said on condition of anonymity due to the sensitivity of the issue.
The apex court had cancelled 122 telecom licences and spectrum allocated to nine companies and also said that the government should auction the freed-up spectrum. The telcos will lose their licences one week from the date of allocation of spectrum won in the auction.
“If the licence has been quashed by the Supreme Court, not because of any wrongdoing on the part of the company, then we will reimburse the entry fee paid in January 2008,” said the official cited above.
If a telco that has had its licences cancelled by the Supreme Court ruling has no ongoing proceedings, criminal or otherwise, against it and chooses not participate or doesn’t win spectrum in the auction, then the money will be refunded, the officials explained.
“The payout could be as high as Rs.8,000-9,000 crore, if no one is convicted,” the DoT official said.
Telecom stocks rose on news of the recommendation that charges on incumbents won’t be retrospective. Bharti Airtel Ltd, India’s top mobile phone operator, gained 1.62% to close at Rs.270.15 on BSE, while Idea Cellular Ltd, the fourth largest by subscribers, advanced 3.6% to Rs.80.80. Reliance Communications Ltd (R-Com) rose 2.19% to Rs.63.10. The benchmark Sensex fell 1.21%.
The worst affected firm will pay around Rs.3,000-4,000 crore in addition to renewal and spectrum liberalization costs.
“It’s not retrospective as was feared most, but prospective. The fact that they would have to pay was already taken into account, but this way, the stress of the renewal that is coming in the next two years is also diluted as they will likely pay for the spectrum to liberalize it, giving them 20 more years,” a senior telecom analyst with a Mumbai-based investment banking firm said requesting anonymity.
The move will impact Bharti, Vodafone India Ltd, Idea, Aircel Ltd, R-Com and Tata Teleservices Ltd. The impact on the newer operators will be minimal as they do not hold more than 4.4MHz of spectrum in most parts of the country.
Tata Teleservices and R-Com declined to comment as the recommendations are not official yet. Bharti, Vodafone, Idea and Aircel did not respond to emailed queries.
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First Published: Tue, Oct 09 2012. 12 24 AM IST
More Topics: 2G | eGoM | one time fee | Bharti | Vodafone |