Dept of Telecommunications to abolish 3% floor rate

The relocation in the brief run – if 5G auctions are held next year in March – would assist Bharti Airtel and Reliance Jio in reducing their SUC payment. However, a comparable gain might not come through Vodafone Idea’s method.

The Department of Telecommunications (DoT) will get rid of the floor rate of 3% of the adjusted gross profits (AGR) for operators to pay their spectrum use charge (SUC), a relocation which would in the long run make such payments absolutely no for operators for their whole spectrum holding.

“We will remove the 3% floor and progressively the SUC charges will continue to come down, effectively becoming zero in the long run as operators keep on buying more spectrum,” a DoT authorities stated.

The relocation in the brief run – if 5G auctions are held next year in March – would assist Bharti Airtel and Reliance Jio in reducing their SUC payment. However, a comparable gain might not come through Vodafone Idea’s method.

This is since Bharti and Jio will be able to purchase more spectrum because their capital is healthy, however Vodafone might be constrained since of its extended financial resources.

The elimination of the provision repairing a floor rate of 3% is needed to provide result to the just recently revealed telecom relief bundle, where apart from offering a four-year moratorium to operators on their AGR and spectrum charges, the federal government likewise stated there would be no SUC on spectrum gotten in future auctions.

This arrangement cannot work unless the 3% floor is gotten rid of as segregating earnings from various spectrum bands is not possible. In the past, a DoT committee has actually stated that the exact same spectrum bands are utilized to offer various services, so partition is not possible and if enabled there’s high opportunity of arbitrage with operators revealing earnings in bands where the SUC is lower or absolutely no.

For circumstances, 4G spectrum presently with operators will be utilized for 5G services once they get more spectrum in the latter band in future auctions. How is it possible then to recognize which spectrum, gotten when, is being utilized for offering which services?

Though the telecom bundle talks of ditching SUC just on spectrum gotten in future auctions like that of 5G, if the 3% floor is eliminated, as and when operators get more spectrum in future auctions, their SUC will end up being absolutely no on the whole holding.

This is since of a complicated weighted typical formula to compute the SUC of operators who have a mix of administratively assigned spectrum and gotten through auctions. Reliance Jio, which has its whole spectrum from auctions, pays a flat 3% SUC on its whole spectrum holding, however operators like Bharti Airtel and Vodafone Idea pay around 4.5-5% as they have a mix of 2.

The weighted typical formula was created such that with time as operators get more spectrum in auctions, their SUC would boil down from state 4.5-5% to 3%. It might therefore have actually gone even listed below 3% over a duration of time as the quantum of auctioned spectrum grew, so to safeguard its profits, the federal government repaired a floor of 3% in 2016.

“The weighted average of SUC rates across all spectrum assigned to an operator (whether assigned administratively or through auctions or through trading) in all access spectrum bands including broadband wireless access spectrum in 2300 MHz/2500 MHz band acquired in 2010 auction shall be applied for charging SUC subject to a minimum of 3% of AGR excluding revenues from wireline services,” checks out the DoT’s alert on the topic. Crypto Press