Flat fee optimal for spectrum use

The Telecom Regulatory Authority of India (TRAI) has drilled holes in a formula government uses to calculate annual spectrum charges payable by mobile phone operators and suggested using value generated by use of the airwaves to be included in the basis for computing levies.

• It has said that formula in practice may have a significant impact on the revenue payable to the government. TRAI has also identified complications in adopting flat spectrum rate recommended it earlier.

TRAI’s proposal:

The Telecom Regulatory Authority of India (Trai) has suggested adding another element — the final bid value for a spectrum band won in an auction — to the weighted-average formula proposed by the telecom department (DoT), saying the change would reflect potential revenue from the airwaves that had been acquired, and thus was a better way of calculating SUC. If the proposal is accepted, telcos will need to pay more to the government.

Background:

The Cabinet last month approved spectrum auction rules except spectrum usage charges (SUC) recommended by the inter-ministerial panel Telecom Commission. The Cabinet asked telecom ministry to seek Trai’s view on SUC before it approves the rule.

• Currently, telcos are charged different rates based on the complicated weighted-average formula, which takes into account non-auctioned or auctioned spectrum, quantum of airwaves bought, and the specific SUC applicable to the auction from which airwaves were bought. The 4G spectrum bought in 2010 is kept out of this formula and is charged at a flat 1% of annual revenue.
• The DoT’s latest formula includes the 2010 4G airwaves for calculating SUC. In 2013, Trai had proposed a flat 3% SUC across all bands of spectrum— auctioned or not—which could be gradually brought down to 1%, as it was difficult to distinguish revenue accruing from different bands of airwaves.
• All operators that currently pay SUC as per weighted-average formula had been in favour of flat SUC of 3%, citing problem with revenue segregation, especially with 4G services being offered using different airwaves. This, they felt, could lead to revenue arbitrage.
• Currently, telecom operators pay in the range of 3% to 8% of their adjusted gross revenue as SUC for spectrum bands expect 2300 MHz, for which the charge is 1 per cent of AGR. This arbitrage may be exploited by operators as it is not possible for the government to segregate revenue accrued from different bands of spectrum.