In the run-up to the 2G spectrum auctions, expected to be held in November 2012, the empowered group of ministers (EGoM), led by finance minister P. Chidambaram has approved a one-time fee for excess spectrum held by existing telecom operators.
In another significant move, the EGoM has recommended that the licence fee of Rs 16.58 billion be refunded to companies whose licences were cancelled in February 2012, provided there are no criminal charges against them.
?We have recommended to the cabinet that telecom companies pay a one-time fee for their 2G spectrum beyond the 4.4 MHz mark in all regions prospectively for the remaining period of their licences. The finer points such as the date of implementation and the time frame for payment will be worked out later,? law minister Salman Khurshid stated in a leading business daily.
The EGoM has to resolve the issue of additional spectrum charges before the 2G spectrum auctions. Moreover, the incumbent operators? decision to participate in the auction depends on the resolution of the issue. However, these operators, who have opposed any levy on excess spectrum, have termed the proposal as illegal and in violation of licence conditions, which provided them spectrum for a 20-year period.
However, the Department of Telecommunications (DoT) believes that it is important for existing operators to pay a one-time auction-determined price in order to provide a level playing field for the new entrants and the incumbents. According to DoT officials, existing operators secured spectrum along with pan-Indian licences for Rs 16.58 billion, while new operators will have to pay at least Rs 140 billion for airwaves to offer mobile services in the country.
DoT, therefore, offered four proposals to the cabinet ? no charge; a one-time fee on all airwaves held by existing telecom companies; a fee on airwaves held beyond the start-up spectrum of 4.4 MHz; and a fee on airwaves held beyond the contracted spectrum of 6.2 MHz.
If the EGoM?s decision is accepted by the cabinet, the government would gain over Rs 270 billion. It will, however, impact operators, who are already under financial pressure due to declining profitability, thin margins and growing debt.
According to industry experts, state-owned companies Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) as well as private operators like Bharti Airtel and Vodafone India, which hold over 10 MHz of airwaves in many circles, will be the most impacted players. Some back-of-the-envelope calculations show that BSNL and MTNL will have to pay about Rs 62.5 billion and Rs 46.4 billion respectively, followed by Bharti Airtel at Rs 50 billion, Reliance Communications at Rs 37.7 billion, Vodafone India at Rs 32 billion, Tata Teleservices Limited at Rs 24.5 billion and Idea Cellular about Rs 23 billion.
Operators that do not want to pay the additional fee can release additional spectrum beyond 4.4 MHz. However, this is not a likely solution, especially for GSM operators, that were allocated spectrum beyond 6.2 MHz based on their subscriber base.
Several operators are likely to challenge the EGoM?s decision in court. They say that a one-time fee cannot be levied without amending the licence terms and conditions, which can be undertaken only if the government invokes the need to protect national security or public interest.
The Cellular Operators? Association of India (COAI), which represents the GSM players, and the Association of Unified Telecom Service Providers of India, which represents CDMA operators, have opposed the fee.
According to Rajan Mathews, director general, COAI, operators are unlikely to bid aggressively in the upcoming auctions. This could translate into the government not earning the estimated Rs 400 billion from the sale of airwaves.
It has also been reported that some mobile operators holding only 4.4 MHz spectrum are likely to contest the EGoM?s recommendations in court as their contracts entitle them to a minimum of 6.2 MHz of airwaves in every circle and DoT would be violating licence conditions if it charges an auction-determined price for additional spectrum beyond the 4.4 MHz limit.
Meanwhile, responding to the opposition from operators, the panel of ministers on spectrum has sought another opinion from the attorney-general. Earlier, Attorney-General Goolam E. Vahanvati had recommended that only incumbent GSM operators such as Bharti Airtel, Idea Cellular and Vodafone India be charged the auction-determined fee for additional airwaves beyond 6.2 MHz on a retrospective basis from July 2008.
