DoT planning to double percentage of revenue share

DoT planning to double percentage of revenue share

The department of telecommunications, or DoT, plans to double 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, to them.

The doubling of the percentage of revenues to be shared—from 3% to 6% for operators using radio spectrum above 6.2MHz and up to 8MHz and to 8% from 4% for those holding the rights to use between 8MHz and up to 10MHz—will affect almost every phone firm using the GSM technology.

Bharti Airtel Ltd, Vodafone Essar Ltd, Idea Cellular Ltd and Spice Telecom Ltd have all been allotted at least 6.2MHz of spectrum to run cellular services in different parts of the country. The GSM technology uses more spectrum for the same area covered and the number of subscribers served.

In fiscal 2007, wireless telecom firms paid nearly Rs10,870 crore in fees to the government, according to trade body Association of Unified Telecom Service Providers of India. The DoT plan to increase the revenue share percentage for different amounts of spectrum comes as part of a plan to have the “economic value" of this resource reflected in the charges levied on the phone firms, some of which are among India’s most valuable by market capitalization.

In its August recommendations, telecom regulator Telecom Regulatory Authority of India, or Trai, had asked the government to increase existing spectrum charges to reflect a reasonable market value of the allocated spectrum. “The authority noted that the Ebitda margins of listed telecom companies in the country is more than 1.75 times that of listed IT companies," said Trai in its 29 August recommendations to DoT. Ebitda, short for earnings before interest, taxes, depreciation and amortization, is a measure of profitability of the core operations of businesses.

“Ideally, spectrum charges should be substantially higher than the cost of infrastructure required for efficient utilisation of spectrum to achieve the prescribed criterion for next slab," DoT said in a discussion note. It had formed a committee of members from the telecom engineering centre, Centre for Development of Telematics and the wireless planning coordination wing to examine Trai’s suggestions. A final decision on the revenue share will be taken shortly.

“A rate revision would make service providers look for better ways of increasing utilisation of spectrum, which is a scarce resource," said a senior Trai official who did not wish to be identified.

Telecom experts were critical of DoT’s move and emphasized the need for clear, long-term policies. “Just because these operators have become bigger, you cannot charge extra," said Rekha Jain, a telecom expert and a professor at Indian Institute of Management Ahmedabad. “In 1999, it was proposed that these charges will be used for setting up a spectrum management fund, what happened to that?"

Others believe revenue share is applicable in a subsidy regime, and not in a industry with profit-making large operators. “Revenue share makes sense for rural rollouts under USO (universal service obligation) Fund scheme, wherein operators (offering services in unprofitable rural areas) need to be subsidized," said a senior executive at a telecom firm who did not wish to be named, because his company is an applicant for a new telecom licence and he doesn’t wish to be seen to be criticizing DoT.

With DoT allowing telcos such as Reliance Communications Ltd, which operates on the CDMA platform, to also offer services on GSM, the issue of calculating the spectrum fees as a percentage of revenues for these separate platforms—CDMA or code division multiple access, GSM, or fixed line—need to be sorted out as well, the DoT note said.

According to the Cellular Operators Association of India, the lobby representing GSM operators in India, telecom firms already pay between 24% and 32% of their revenues towards licence fees, service taxes and other spectrum charges.

The country has around 209 million wireless subscribers and some seven-eight million new customers are being added every month, making it the fastest growing wireless market in the world.