Trai drills holes in the formula to calculate Spectrum charge given by Telecom Department

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. Telecom regulator TRAI identified complications in adopting flat spectrum rate recommended by it earlier but still batted for it to make process simple and transparent in future.

“The over-all SUC rate arrived at by the weighted average formula is also impacted by SUC rate fixed for each band…This may have a significant impact on the overall spectrum usage charge that is payable to the Government,” TRAI said in its reply to reference sought by the Department of Telecom. 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.

According to TRAI, the government considers only quantum of spectrum held by a telecom operator to calculate spectrum usage charge but this may not give correct value as intended under the concept of collecting this charge.“While quantum of spectrum will certainly be a factor in any weighted average formula, this may not be the sole factor to estimate the revenue from a given band. It is widely accepted that currently some spectrum bands generate greater revenue than others even if the holding is smaller than in other bands,” the telecom regulator said.

It has suggested DoT to take into account benefit that a spectrum band delivers and bid price of the airwaves can be used as one of the factor to determine a close value for calculating spectrum usage charges. A DoT committee has said that it is not possible to segregate revenue that a telecom operator earns from a particular band as various bands can be clubbed to deliver 3G or 4G mobile services. The telecom department (DoT) fixes percentage of amount that it will charge from revenue telecom operators earn by providing services. The percentage was earlier fixed based on slab rate ranging between 3-8 per cent of telecom services revenue while exact percentage was levied based on spectrum holding of the firm.

The government, in January 2014, decided to cap SUC at a flat 5 per cent for spectrum that was to be procured in the future auctions. The government imposed weighted average formula on companies holding spectrum allocated in past and buying spectrum in future. Moving towards lower or flat spectrum regime, the telecom ministry proposed 3 per cent SUC rates from upcoming auction and weighted average for companies holding old spectrum.TRAI said that DoT has neither sought the opinion or recommendation of TRAI on this matter in the past nor has there been any consultation on it.

The regulator has said that the method suggested by it will give only approximate revenue and it is only a temporary solution. TRAI reiterated that “all possible steps should be considered by the DoT to move to a simple, transparent and flat ad valorem SUC regime in accordance with law”. TRAI had recommended SUC at a uniform rate of 3 per cent across the industry and gradually bringing it down to 1 per cent of revenues from telecom services. The SUC has been a highly contentious issue of late with the industry. Reliance Jio has opposed levying of uniform SUC rates, as suggested by TRAI, as it pays only 1 per cent on its spectrum in 2300 Mhz band (broadband wireless access).

Finance Minister Arun Jaitley had said that the Telecom Commission took the opinion of Attorney General on SUC after recommendation of TRAI was received and hence there was need to consult the regulator again before a final call was taken. The regulator said that DoT has never sought the opinion or recommendation of Trai on this matter in the past nor has there been any consultation on it.

“While the optimal solution in the view of the Authority is to move to a flat rate regime, we are constrained to limit ourselves to examine the weighted average solution as suggested by Ld. AG (Attorney General) and proposed by DoT,” TRAI said. Before 2010, there was only 2G spectrum and hence the calculation of revenue was easy. But the process became complex after new frequencies were allocated to companies for services like 3G and 4G.

PTI