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Trai's new formula: Reliance Jio oppposed flat SUC, will feel relieved now

The telecom regulator has proposed its own weighted-average formula to better calculate the annual spectrum usage charge (SUC), but added that its suggestion was due to legal compulsions and that a flat levy was the best option.

The Telecom Regulatory Authority of India (Trai) on Tuesday suggested adding another element the final bid value for a spectrum band won in an auction to the weighted-average formula proposed by the telecom department (DoT), saying the change would reflect potential revenue from the airwaves that had been acquired, and thus was a better way of calculating SUC. If the proposal is accepted, telcos will need to pay more to the government.

The current DoT formula, “may have a significant impact on the overall spectrum usage charge that is payable to the government,” Trai said.

The regulator’s recommendations to the telecom department, which need to be cleared by Cabinet, will douse hopes of exiting operators. They had been expecting Trai to suggest a flat SUC, in line with its previous views in 2013. But Reliance Jio Infocomm, which had been against any flat levy, will feel relieved.

“While the optimal solution in the view of the authority is to move to a flat rate regime, we are constrained to limit ourselves to examine weighted average solution as suggested by (the attorney general) and proposed by DoT,” the regulator said in recommendations.

Trai was referring to the attorney general’s view that the SUC fee for 4G airwaves bought in the 2010 sale cannot be altered due to the rules of that spectrum auction. The telecom department, which had also backed a flat levy citing difficulties in revenue segregation from different bands, had to consider the legal opinion and stuck to its weighted-average formula to calculate SUC. The only change was that DoT decided to include the 4G spectrum bought in 2010 in the formula to reduce arbitrage possibilities. This formula was considered by the Cabinet, which decided to send it to Trai for its views.

“While taking a view on this (SUC) matter, all possible steps should be considered by DoT to move to a simple, transparent and flat ad valorem SUC regime in accordance with law,” Trai said, adding that any weighted-average formula was at best a temporary solution.

Trai’s new weighted-average formula, which could replace the one suggested by DoT, takes into account the final ‘bid value’ made for each spectrum band in an auction, in addition to the existing weights, which is the quantum of airwaves bought by an operator.

The reason cited by the regulator is that by itself quantity of airwaves is not a sufficient weight and revenue arising out of each bandwidth, as indicated by the bid value, should also be taken into account. Trai said since revenue segregation is not possible, bid amount paid by an operator was indicative of revenue expected from that bandwidth.

“As bid values are a reflection of how the TSP (telecom service provider) values the band, taking into account market-determined price based on bid values might lead to a result that more closely approximates the result, were it possible to segregate revenues as envisaged by the NIA(notice inviting applications),” Trai said. NIA is the document containing auction rules.

If accepted by the government, Trai’s formula will result in a higher payout by the industry compared to what had been proposed by DoT, the regulator said.

As per DoT’s formula, Jio’s overall SUC for its current airwaves will be 2.88% of revenue while Airtel’s charge will fall to 3.74% from 4.9%. But to prevent revenue loss to the government, operators will have to shell out at least what they did in FY16, about 7,000 crore from the levy. “DoT may take a call on the issue of imposing floor amount to cover revenue shortfall (due to Trai’s new formula),” the regulator said

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