The Union Cabinet has cleared the government's proposal to levy a spectrum usage charge (SUC) of 5% on annual revenue from 2G airwaves bought through the upcoming auction, along with a weighted average system for old and new airwaves, paving way for the auctions to begin on February 3. "The Cabinet has ratified the decisions taken by the Empowered Group of Ministers on spectrum usage charge," said Uma Shankar, joint secretary at the telecom department.
The approval puts to rest speculations around the possibility of any further delay in the bandwidth sale, crucial for the likes of No. 1 operator Bharti Airtel and No. 2 Vodafone India who must win 900 Mhz spectrum in Delhi, Mumbai and Kolkata to continue to offer uninterrupted services. Vodafone's licences in all three circles expire November 2014, the same time when Bharti's licenses expire in Kolkata and Delhi.
The Cabinet stamp on SUC also seals interests of mobile phone companies in this auction that had asked for complete clarity on the contentious issue before the spectrum sale begins. New Delhi had already slashed the starting prices and, as demanded by operators, brought out guidelines on spectrum trading well before the start of the sale. Now, only M&A rules remain to be clarified.
With the cabinet nod on SUC, the current cascading 3-8% fee that the government levies will get replaced with a flat 5% fee on the airwaves bought in this auction.
The move will benefit large companies such as Bharti Airtel and Vodafone India that pay higher rates as they hold more airwaves. Analysts say that their fee rate may come down to around 5.5% on overall spectrum holding. It will also benefit them prospectively as the companies are likely to be two of the four aggressive bidders in the upcoming auctions.
The panel of ministers had also decided to stick with the existing 1% fee that broadband wireless bandwidth (BWA) holders pay, providing big relief to Mukesh Ambani-owned Reliance Jio, which is also among the top four bidders in the auction, along with Idea Cellular. The official said that this decision has also been approved by the Cabinet.