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The Telecom Commission has decided to stick to its earlier recommendation to impose a 3% spectrum usage charge (SUC) on telecom operators, across all bands except one, during the spectrum auction scheduled to be held later this year, reports PTI. For the 2300 MHz band or the broadband wireless access (BWA) spectrum band, the SUC will be 1%. The commission will have to send these recommendations for cabinet approval.

Back in January 2014, the government had decided to levy a flat 5% SUC on spectrum at future auctions, and did away with the 3-8% SUC range that was being charged earlier. Apparently, the Department of Telecommunications (DoT) has also been considering lowering SUC further to a flat 4.5%.

Note that as per the recommendation SUC will be calculated using a weighted average formula between:

BWA spectrum (1%), current SUC (5% for spectrum bought in 2014 and 2015, and 3-8% before that), future spectrum (3%)

SUC is calculated based on the adjusted gross revenue of a telecom operator, i.e., revenue that is directly generated by a telco, excluding taxes and interconnection charges payable to other telcos.

Government revenue may take a hit: The government is likely to target raising $25 billion or Rs 1,66,762.5 crore from the upcoming spectrum auctions, according to Credit Suisse. However, this might take a hit if the recommendation to lower SUC is upheld by the cabinet. During the spectrum auction in 2015, the government had raised Rs 1,09,874 crore from the sale of 418.05 MHz of spectrum. The top five circles were Maharashtra, Andhra Pradesh, Rajasthan, Gujarat and Karnataka, which accounted for 52% of the bids. This was 36.86% higher than the Rs 80,277 crore the government had targeted from the auctions based on the reserve price set by it. More on this here and here.

TRAI reserve price recommendations

In January this year, the Telecom Regulatory Authority of India (TRAI) recommended a reserve price of Rs 11,485 crore per MHz for pan-India airwaves for the next round of auctions. This includes the base spectrum pricing for 7 bands, including the 700 MHz spectrum which is being offered for the first time and supposedly offers high quality mobile broadband and 4G.

TRAI has suggested a reserve price of Rs 2,873 crore per MHz for the 1800 MHz band (2G spectrum), which is 31% higher than reserve price the government fixed in the 2015 auction. While for 3G spectrum in the 2100 MHz band, TRAI has recommended a reserve price of Rs 3,476 crore.

The TRAI is of the view that the telecom industry needs more spectrum to address call drops, as well the spectrum crunch.

Telcos wary of exorbitant reserve price for the 700 MHz band

Back in February this year, Airtel India CEO Gopal Vittal said that TRAI’s recommended reserve price for the 700 MHz band is very expensive and that they will not be able to afford to buy spectrum at this price.

While last month, Telenor India criticized the Telecom Commission’s approval of the base price for the 700 MHz band and its decision to hike upfront payments to 50% from the earlier 10% proposed by the TRAI, for both the 700 MHz and the 800 MHz bands.

Our spectrum coverage.