Ministerial group suggests new formula for 3G, 2G+3G pricing

Ministerial group suggests new formula for 3G, 2G+3G pricing

New Delhi: A ministerial committee looking at how India can charge for spectrum in a business environment where some telcos provide second-generation, or 2G, services, some provide data-rich third-generation, or 3G, services, and some provide both has suggested a formula that seeks to address difficulties in accounting and monitoring involved in levying this charge.

The committee, comprising representatives from several ministries, has suggested that firms offering only 3G services pay 3% of their annual gross revenue and those offering both 2G and 3G services pay 1 percentage point more than what they currently pay for spectrum—a proportion that ranges between 2% and 5% of annual gross revenue for firms offering services on the GSM platform and 2% for those offering services on the competing CMDA platform.

Both will kick in a year after firms have been issued licences and spectrum, allowing them enough time to roll out their services.

The Telecom Regulatory Authority of India, or Trai, had earlier recommended that telcos offering 3G services pay 1% of their revenue as spectrum charges.

This, however, would have meant that while these firms paid 1% of their annual gross revenue, those offering 2G services would have had to pay up to 5% of their annual gross revenue as spectrum fees.

The ministerial panel was created by the department of telecommunications (DoT) to look at a fair model of charging firms offering 3G services and ways to segregate revenue from 2G and 3G services. The panel, in its report, however, said segregating revenue between 2G and 3G services of a telco would be difficult. The report cites “huge difficulties in verification and audit to prevent creative accounting and arbitrage, and other practical difficulties" to rule out segregation of 2G and 3G revenues.

3G services won’t generate much revenue initially because they will likely be restricted to the metros and “be a high-end service", said Romal Shetty, director at audit and consulting firm KPMG. “The fact that it is being given out by auction and the fact that the handsets are priced at Rs10,000 at least does not allow for the service to be really cheap and driven by volumes." Shetty said it would take at least two or three years for revenue to come in.

With DoT considering raising charges for 2G spectrum by 1 percentage point, the panel has also suggested that firms providing both 2G and 3G services continue to pay what they currently do for 2G spectrum.

The additional 1 percentage point would mean doubling the spectrum charge for telcos in the lowest slab, the panel’s report said.

Meanwhile, in an unrelated development, India’s telecom minister A. Raja, under fire for allocating spectrum to new entrants without an auction, is likely to ask for an investigation into how DoT didn’t issue new licences before he took charge, claiming there was no spectrum available, news agency PTI reported, citing unnamed sources.

PTI contributed to this story.