Telecom department considers changes in spectrum charges

Telecom department considers changes in spectrum charges

New Delhi: The department of telecommunications, or DoT, is studying a proposal to amend the licence agreement that it signs with telecom operators to only include revenue from activities that use spectrum in the computation of adjusted gross revenue (AGR), a percentage of which is paid as spectrum usage charge to the government.

The move could lead to a savings of around 10-20% on the spectrum fee, said an industry executive who didn’t want to be identified.

The internal note, which has been reviewed by Mint, comes as DoT is fighting a case in the Supreme Court (SC) where it is contesting a decision of the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) to allow only revenue from telecom-related activities to be included in the calculation of AGR for licence fee.

India’s telecom operators pay between 2-6% of the AGR as spectrum usage charge and between 6-10% as licence fee to the government to offer telecom services in the country.

The DoT expects upwards of Rs4,000 crore as spectrum usage charges in this fiscal year to March. India’s largest telecom operator paid Rs320 crore in the quarter ending March 2009 as spectrum usage charge.

At present, if a service provider has 4.4MHz of spectrum in any circle, or telecom service area, the operator must share 2% of AGR as spectrum usage. For 6.2MHz of radio frequencies, the charge is 3% of the total revenue, for 8MHz and 10MHz, it is 4% and for 12.5MHz, it is 5%. Any telecom company that gets 15MHz of radio frequency in each circle must pay 6% of revenue towards spectrum charges.

The licence fee is paid based on the circle where the operator provides telecom services.

AGR is now defined as all the revenue an operator earns directly, less taxes and interconnection charges paid to other operators.

“The proposed amendment provides that all revenue attributable to activities not using wireless spectrum will be deducted from AGR for determining wireless spectrum charges," the internal DoT note said.

The DoT has asked that the financial implications of the move be studied before a final decision is made.

“The revenue implications of the proposal will be more severe if the proposed modification is applied retrospectively," the note added.

The DoT is also looking into whether the move could have an impact on its appeal in the SC against the TDSAT judgement of August 2007. The judgement said that any revenue earned by the licensee not due to licensed activity has to be deducted from the AGR.

Earnings from interest and foreign exchange, among others, are included in the computation of AGR.

“The move is in the right direction, and the operators will welcome it, as revenue share should be based on the respective services rendered. Things like investments and interest earnings are done to improve the profitability of the company," said Varadarajan Sridhar, research fellow with software services provider Sasken Communication Technologies Ltd. “There should be some clarity on why only the spectrum usage charge is being resolved and not the licence fee. Ideally there should not be any distinction; it is an unnecessary complication."

The proposed “move would increase the regulatory overhead in terms of more auditing would be needed", he added.

The DoT should move towards a system that will penalise inefficiency, said Mahesh Uppal, director of Com First (India) Pvt. Ltd, a consultancy firm.

“In the present scenario, it’s a good idea to base the usage charge on the actual usage but I believe that using revenue as a basis for the fees is a bad idea. In a way it encourages inefficiency. Revenue share should be based on the sector’s revenues rather than the individual operator’s revenues," said Uppal.

“If an operator is more efficient, he pays lower revenue per subscriber while if he is inefficient, he’s bringing down the average for the rest and should be made to pay a higher amount," he said.

According to data from the telecom regulator, the government made Rs849 crore in the last quarter of the 2008-09 financial year as spectrum usage charge.