Reduction Of Spectrum Usage Charges — Kindness Or Shatranj?

Chaalbaazi that Vish Anand would be proud of!

No wonder my parents kept telling me study Economics. Nowadays I really wish I had. There’s just so much that changes in life, by the twist of a few laws, policies and through someone’s mature outlook at real-world realities.

And I’ve just about started seeing the Matrix in our world. Costs, prices and derivatives rally around some little-known catalysts, themselves an outcome of innocuous changes in approach, or shifts in long-term plans by some authorities.

Case in point, the Indian government recently slashed the Spectrum Usage Charges (these are annual charges levied by the government on telecom companies (operators), for using the ‘natural resources’ to provide telephony to its users) , down to 3% (from the current 5%) of the Adjusted Gross Revenue.

As the cost of doing business reduces, it might result in lower tariffs for calls and broadband — obviously to the customers’ benefit, while also freeing up cash for debt-laden mobile service providers.

Why now, though?

This move is expected to free up financial resources for operators — as much as INR 3,200 crores, to invest in their networks and other mission-critical infrastructure. This is a savvy move, because the extra cash reserves will also benefit the government during the next spectrum auction planned for July 2016.

The July spectrum auction that is expected to fetch over INR 5.5 lakh crores to the exchequer and hence the government needs all the operators to bid high in the wake of reduced spectrum use charge (SUC).
With that endgame in mind, the Telecom Commission’s decision to charge a reduced SUC will actually prove to be revenue-neutral for both, the operators and the government as it is only applicable on spectrum acquired in the forthcoming auctions. Ah, the irony of Economics, flavoured by strategies that would make Sun Tzu proud!

The decision was made by the Telecom Commission, considered as the highest decision making body of the Department Of Telecom (DoT) and has received clearance from the Telecom Minister, Ravi Shankar Prasad.
Next, the proposal will be sent to the Union Cabinet for approval.

But all’s not gloriously well yet. For one, the recommendation of lowering Spectrum Usage Charges (SUC) didn’t go well with Reliance Jio, who’ve opposed the recommendation vehemently.
Reliance Jio holds a pan-India Broadband Wireless Access (BWA) licence — on which only 1% SUC is imposed. The government was forced to reconsider. They amended the amendment, reinstating the 1% limit back to BWA licence holders.
While this may have appeased the BWA holders, it does not mitigate the scope of arbitrage by other operators not so happy with the exception.

Additionally, the move seems to create confusion by adding one more layer atop the existing four already existing under the SUC regime.

Operators having spectrum acquired through previous auctions will have to pay SUC by a weighted average formula if they choose to buy spectrum in the forthcoming auctions. This will take their final payment to higher than 3% and quite close to what they currently pay.

At present, most operators like Bharti Airtel, Vodafone and Idea pay an average SUC close to 5.5% as they possess a mix of administratively allocated spectrum and that was acquired through multiple earlier auctions.

The Telecom Commission’s decision creates different charges for spectrum auctioned before 2016 and after, so once again the final charge will be calculated by the weighted average formula, while operators like Telenor, who has only auctioned spectrum, will also have to pay by a weighted average formula if it chooses to buy spectrum again in the forthcoming auction in June/July.

Operators would, thus end up paying close to what they are paying currently. The final figure though will depend on the circle and quantum of spectrum they buy.

All that aside — for consumers, the reduced SUC may come as a source of benefit, as their mobile phone and broadband bills might witness a drop soon. Who doesn’t like saving some money in this era of rampant inflation and the increased proclivity to use our phones for everything, including reading the news!

Originally published at Chip-Monks.