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One-time Fee On Telcos With Spectrum Beyond 6.2MHz

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The Empowered Group of Ministers (EGoM) on telecom, headed by Finance Minister P Chidambaram, on 18 October decided to impose a one-time fee on mobile operators holding spectrum beyond 6.2 MHz, a step which is expected to fetch over Rs 10,000 crore to the exchequer.

This will be in excess of Rs 27,000 crore surcharge that the EGoM had last week decided to impose on GSM carriers having spectrum in excess of 4.4 MHz and CDMA operators with 2.5 MHz airwaves.

Thus long-established mobile phone operators that were not affected by the scandal-hit sale of airwaves that hurt their newer counterparts will have to pay a retrospective fee for part of their airwave holdings. The EGoM recommended to the Cabinet that firms like Airtel and Vodafone holding airwaves in excess of 6.2 Mega hertz, should be asked to pay a one-time fee for four years beginning 2008, sources privy to the EGoM decision said.

Sources said the surcharge on operators with more than 6.2 MHz would have to be paid as per 2001-indexed price (Rs 1,658 crore) for four years beginning 2008 which is likely to fetch Rs 10,000 crore.

The auction-determined fee on spectrum beyond 4.4 MHz and 2.5 MHz is to be imposed from the day the Cabinet approves of the levy.

The final decision on the matter will be taken by the Cabinet.

Telecom Minister Kapil Sibal, who did not comment on the one-time fee, however, said the EGoM deferred a decision on the spectrum refarming issue as "there wasn't enough time".

The 2G spectrum was allotted in January 2008 at the entry fee of Rs 1,658 crore and total revenue generated was about Rs 9,000 crore.

The twin moves are aimed at providing level playing field to the firms, who would be bidding in the auction of spectrum starting next month. The government has fixed a start price of Rs 14,000 crore for 5 MHz of pan-India spectrum.

The base price for spectrum in the upcoming auction is more than seven times than what carriers paid in earlier sales where airwaves were bundled with telecom permits.

The EGoM, however, has deferred the decision on asking telecom operators like Airtel and Vodafone to give up their existing spectrum and buy less-efficient airwaves.

The EGoM was to take a view on the Telecom Commission's (TC) recommendation that mobile phone firms give up all their airwave holdings in more-efficient 900 mega hertz band when their permits come up for renewal starting November, 2014.

The telecom operators can bid for the airwaves in an auction next year, or can buy replacement airwaves in the less efficient 1800 MHz band, the TC headed by Telecom Secretary R Chandrasekhar had recommended on Wednesday.

Talking about EGoM's decision, Prashant Singhal, Partner in member firm of Ernst & Young Global said: "With today's announcement, the telecom services will certainly go to the 'classes' from 'masses'... A payment of Rs 30,000 crore towards excess spectrum charges will have an impact on the future state of industry and will lead to tariff increase."

'Broadband for All' which is a core element of NTP'12, will be negatively impacted if the ministry sticks to 4.4 MHz threshold for charging telecom firms the one-time fee, he added.
 
Telecom Panel Recommendations
The Telecom Commission had recommended to the Cabinet that GSM-based carriers be asked to pay for airwaves beyond 4.4 MHz at the auction-determined price, while CDMA carriers pay for holdings beyond 2.5 megahertz.

Sources said the levy will not be backdated and would be effected from the date of approval by the Cabinet. But for those telecom operators whose 2008 spectrum-bundled-with- licence states that they would be charged for airwaves beyond 6.2 MHz, would be asked to pay the one-time levy with effect from 2008.

The government will in November auction spectrum at a minimum bid price of Rs 14,000 crore for 5 MHz of airwaves for all the country's 22 telecom zones.

The auction base price is more than seven times what carriers paid in earlier sales where airwaves were bundled with telecom permits.

The EGoM was to decide on the Telecom Commission recommendation that mobile phone firms give up all their spectrum/airwave holdings in more-efficient 900 mega hertz band when their permits come up for renewal starting November 2014.

The telecom operators can bid for the airwaves in an auction next year, or can buy replacement airwaves in the less efficient 1800 MHz band, the TC headed by Telecom Secretary R Chandrasekhar had recommended on 17 October.

The GSM industry is opposed to this refarming or substitution of their 900 MHz airwares with inferior quality 1800 MHz band spectrum saying it will cost them over Rs 1,00,000 crore in buying replacement airwaves in an auction as also building more mobile masts and replacing some of the existing gears to continue services.

The decision comes a day after Attorney General G.E. Vahanvati said that he would not give his opinion again on the recommendations by the ministerial panel to levy one-time fee on all spectrum above 4.4MHz.

The Attorney General had recommended that the one-time fee be levied retrospectively on spectrum above 6.2 MHz. This recommendation was ignored by the EGoM, which decided earlier this month to set the threshold at 4.4 MHz.

Read: Putting A Price On Spectrum

Refarming Decision Posrponed
Telecom Commission, the highest decision making body of Department of Telecom (DoT), on 17 October had recommended existing operators surrender the entire spectrum in 900 MHz band at the time of their licence renewal in 2014.

This will mean that all the 900Mhz band that older operators—including Bharti Airtel Ltd, Vodafone India Ltd, Idea Cellular Ltd, state-owned Bharat Sanchar Nigam Ltd and MTNL — have been using will be replaced with spectrum in the 1,800Mhz band once their licences come up for renewal, increasing their costs by $24 billion (approx Rs 1.24 lakh crore) in capital outlay.
 
Market leaders Bharti Airtel Ltd and Vodafone's India unit — two of the country's oldest carriers — will be hit the most by the proposed refarming or substituting of their more efficient 900 MHz band airwaves with inferior quality 1800 Mhz band airwaves starting in November 2014.

This would mean the carriers will have to buy the replacement airwaves in an auction, and also have to build more mobile masts and replace some of the existing gears to continue services.
 
The spectrum switch will force operators to write off a total $4.7 billion of assets, as some of their existing equipment becomes obsolete, the Cellular Operators Association of India (COAI) said in May.
 
Meanwhile, former Cabinet Secretary K M Chandrasekhar on 18 October' 2012 said he had favoured the entry fee for 2G spectrum allocation to be Rs 35,000 crore, about 21 times the amount on which the allocation was made, so that the government could earn more revenue.
 
Read:  Wanted 2G Licence Fee To Be Rs 35,000 Cr

Deposing before the Joint Parliamentary Committee examining 2G spectrum scam, Chandrasekhar said he had recommended the amount in a letter to Prime Minister Manmohan Singh in 2007.