Govt woos telcos with 5% cap on spectrum charge

This could be a please all move, and consequences be damned. An Empowered Group of Ministers (EGoM) today decided to cap spectrum usage charge at 5 percent for airwaves acquired in upcoming auctions. It also decided to let the same charge for those telcos which hold BWA spectrum in 2300 mhz band remain at 1 percent. SUC is an annual levy and at present was being charged on the quantum of spectrum telcos hold, at various slabs which ended at about 8 percent of adjusted gross revenue. So the 5 percent decision is a reduction of the total payout for telcos henceforth.

Consequences? The Government's revenue will suffer "in the short term" admitted Telecom Minister Kapil Sibal but the telecom industry will grow, he said.

 Govt woos telcos with 5% cap on spectrum charge

Representational image. Reuters

Bharti holds the maximum spectrum followed by Vodafone and Idea Cellular. These three companies should ideally benefit the most since the highest slab of SUC has been brought down from 8 percent to 5 percent. Plus it will now be calculated as a weighted average so in many instances telcos will effectively pay maybe less than 5 percent.

Speaking after the EGoM meeting which decided on the controversial SUC charges this morning, Sibal said both small and big telcos will benefit from this and the industry should grow faster now. He also said tariffs should fall further now and that the participation in the upcoming spectrum auctions should be good. "Auctions will be very successful," the minister asserted.

If this is a please all move by the Government, why did telecom stocks - largely of incumbents like Bharti (Rs 310, down 0.96 percent), Idea Cellular (Rs 149.90, down 1.7 percent) - fall the moment news of SUC being capped at 5 percent started coming in?

There are really two ways of looking at today's decision:

1) Since SUC will now be the weighted average of spectrum already held and new spectrum, it means charges payable by the big telcos like Bharti, Vodafone and Idea should actually fall even when total quantum of spectrum holding of each increases.

2) The decision should help not just buyers of spectrum in 900 and 1800 mhz bands but also companies like Reliance Jio Infocomm which hold 4G spectrum in 2300 mhz band. Bharti also holds 4G spectrum. For these companies, SC remains capped at 1 percent.

SUC is an annual levy that telecom companies pay based on how much spectrum they hold. This is over and above the spectrum price they pay for acquiring these airwaves. The decision on SUC is significant because it not only settles present uncertainty and does away with multiple slabs at which companies had to pay hefty amounts to the Government but also lowers the actual payout.

Harit Shah of Nirmal Bang Equities told CNBC-TV18 that Bharti and Idea Cellular were charged at 5.5 percent of AGR as SUC in the second quarter but now the payout may come down to about 4.1 percent. Kunal Bajaj of Analysys Mason told the channel that since Bharti holds the maximum amount of spectrum right now, it will be the biggest beneficiary of the Government's decision to lower SUC.

As for 4G spectrum holders, Reliance Jio and Bharti will both benefit since SUC continues at 1 percent. The EGoM obviously accepted the recommendation of the Attorney General on this, ignoring pleas by GSM lobby group COAI to bring BWA spectrum holders on par with GSM biggies who pay the maximum SUC.

Now that the SUC puzzle has been solved, it remains to be seen if any aspirants in the upcoming auctions withdraw applications for participation. The last date for withdrawal is today and the SUC decision may play a big role in telcos' decision either way.

Updated Date: Jan 28, 2014 09:36:43 IST