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Sector Update: Telecom

Sector Update: Telecom
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First Published: Wed, Sep 09 2009. 11 00 AM IST
Updated: Wed, Sep 09 2009. 11 00 AM IST
Media reports suggest that Department of Telecom (DoT) is mulling implementation of a flat licence fee for all circles versus the differential licence fee levied currently.
Presently, telecom operators pay licence fee at the following rates: 10% in the metros and in circle A, 8% in circle B and 6% in circle C. The report also indicates that the government plans to increase licence fees for NLD, ILD and ISP players to 8.5% from 6%.
In our view, if implemented, this will have a mixed impact on different operators based on their respective revenue composition. For operators in the metro and circle A, this will mean likely higher margins; whereas for operators in circle C, margins will come under pressure. The move would be negative for NLD, ILD and ISPs as well.
Earlier in August 2004, TRAI had issued draft recommendations on unified licencing for all telecom services. TRAI had proposed an across-the-board cut in annual licence fee to 6% of adjusted gross revenues (AGR) for all telecom operators.
Reports also suggest that the DoT is considering a plan to include only those revenues earned from wireless services while determining the spectrum charges. The proposed amendment provides that all revenue attributable to activities not utilizing wireless spectrum, will be deducted from AGR, for determining spectrum charges.
If implemented, this measure would result in a significant decline in spectrum charges paid by telecom operators. (Currently players such as Bharti and Idea pay slightly more than 4% of AGR as spectrum fees.)
Based on quarterly revenue and AGR numbers provided by TRAI, we have analyzed the impact of the levy of a flat licence fee (we are not factoring in change in AGR definition) for players in our coverage universe:
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First Published: Wed, Sep 09 2009. 11 00 AM IST
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