3% spectrum chrg positive for industry; Welcome govt's move:COAI

Appreciating the move to retain the spectrum usage charge (SUC) at 3 percent, Rajan Mathews, Director General of Cellular Operators Association of India (COAI) said, in an auction environment SUC should be minimal.

The Telecom Commission agreed on a 3 percent SUC for upcoming auctions across bands, while for remaining spectrum bands post 2010, the SUC will be calculated on a weighted average basis. The SUC for 2300 MHz band has been kept at 1 percent.

Sanjay Kapoor, Former CEO of Bharti Airtel (India & South Asia)  and Former Chairman, Micromax, however, feels the SUC calculation formulae is not as transparent and simple as it should have been and says it would have been great to see a flat 3 percent cap on SUC across spectrum bands.

Nitin Soni, Director, Asia-Pacific Corporate Ratings at Fitch expects reduction in SUC to be only mildly credit positive for telecom companies as they have already acquired spectrum needed for rollout of 3G and 4G.Below is the verbatim transcript of Rajan Mathews, Sanjay Kapoor and Nitin Soni's interview with Kritika Saxena on CNBC-TV18.Q: Your comment and your reaction on the 3 percent Spectrum Usage Charge (SUC). You had been fighting for this exact amount. How much of a positive would this be for the sector?Mathews: Certainly positive in the sense that the previous Telecom Regulatory Authority of India (TRAI) had indicated a 5 percent SUC though really appreciate that DoT secretary going out and fighting to get this reduce to 3 percent. However, the overall issue that we had is that when you are in a liberalised spectrum environment, we are not sure it makes any sense to continue this weighted average methodology because you have all spectrum bands for offering all services. Saying that we should go to a flat amount preferably the 1 percent that was originally indicated by the TRAI as really globally the benchmark is a nominal amount, that’s our overall position.Q: Do you agree with Sanjay that there is still not as much clarity with respect to the transparency of the SUC being at 3 percent and thereby the auctions being that transparent and more importantly coming on the 1 percent from Broadband Wireless Access (BWA) because if I am correct for the two players that holds spectrum that is Rel Jio and Airtel is this is a huge positive?Mathews: I don’t know that it is a positive in that sense in terms of the clarity perspective because what we said is that all spectrum can be used for service. The whole point of asking us and that to do rebid worth around the proposition that spectrum is “liberalised” and the government is neutral as far as technology is concerned. We seem to be at odds with the government’s policy which say it all neutral and then continuing to go forward on this slice and dice type of activity computing on weighted average. Yes, it will impact some operators favourably and some will of course will have to wait to see what happens in the new round of spectrum because that will now come in at a tranche of 3, so these types of anomalies is exactly what TRAI said does give rise to some perverse type of arbitrage that could happen and therefore this is why TRAI said let’s just go to 3 percent and then have glide to 1 percent and as Sanjay said, look this is the international basis after having paid for spectrum upfront it doesn’t make a whole lot of sense to continue extract this type of thing for the spectrum that you paid upfront for.Q: You have been talking to the TRAI and the Telecom Commission as well. Would you be able to quantify, if you are taking the flat 3 percent rate for the upcoming auction how much would the resultant SUC reduction be roughly. How significant would that be for the industry?Mathews: See the point is how much spectrum is going to be acquired, so it would depend upon how much of 1800 is acquired, so we will have to wait to see how much of the total spectrum because the spectrum amount determine, yes you get the 3 percent that is got to be weighted by the amount of spectrum you acquire. Those who acquire a substantial amount of spectrum in coming auction it would be a benefit though the legacy stuff will continue to drive it and in the legacy stuff those who have the BWA spectrum at 1 percent will have a bigger benefit because recognised that 10 MHz is allocated for BWA and that is going to drive for those spokes who have BWA spectrum to be weighted average calculation.Q: Would you probably look at this with a little bit of worry given the fact that they are still calculating it at weighted average?Kapoor: There are three parts to my answer. First and foremost anywhere in the world where there is a market discovered price for spectrum generally the SUC charges are just enough to cover the administrative expenses and they are not that high. That is what the government has been hearing from the industry for a bit. Three percent is something that the industry demanded and the governments by and large come down to that figure. Although that figure is not straight the whole calculation is very convoluted.Q: Would you agree that the resultant SUC reduction will be positive but then for independent companies it may not be as much of an immediate benefit?Kapoor: Yes, of course. What is happening now is better than what was existing. So, it will be accretive from that perspective. But the fact is that the industry which has to roll out some of the data in the country which has to really transform to be video ready network for future the amount of investment that is required is so humongous that we need to let go somewhere. We have made the spectrum probably the most expensive in the whole world. SUC charge is something that we need to let go after having charged market connected prices or market determined prices.Q: You are essentially saying in the larger scheme of thing SUC reduction or SUC flatter three percent is not as imperative in understanding the health of the industry?Kapoor: Specially given the fact that now the spectrum is liberalised and I could be using any band towards the same objective. So, why should it be that if I have acquired 2.3 ghz at a point in time even if it was contractual that that will be at one percent and everything else that gets used to produce the same experience for the consumer is priced higher. It makes no sense. There could be more potent spectrum in 900 mhz, 700 mhz. Just because of the timing issue we are charging differently. That doesn\\'t stack up, why should timing we should determine. It is the application of their spectrum that should determine the charge, not the timing.Q: You have heard the basic details - 3 percent flat charge on the upcoming auctions and a 1 percent as far as BWA auctions are concerned. How much of a positive is this and would you agree that this won\\'t really increase the transparency that we have been asking for?Soni: I agree with most of the points, it is not going to be majorly positive for the industry. It is only mildly credit positive for the telcos who are going to acquire significant amount of spectrum in the upcoming auctions. When I look at the top three telcos they already have pretty much acquired spectrum so far needed for rolling out 3G and 4G services.Vodafone and Idea doesn\\'t not have spectrum on a pan India basis but we believe that there will be limited participation in the upcoming auction at least on the 700 Mhz auctions. So, it is not going to be meaningfully positive for the telcos.2300 Mhz continues to be 1 percent, Jio will benefit from that lower spectrum usage charges compared to the other telcos which are already paying about 3-8 percent as usage charges depending on what spectrum they are holding.Q: Who are the other players and in the pecking order tell me who are the players that will stand to benefit and who are the players that will have the least benefit?Soni: We believe that Bharti has sufficient spectrum, so they will be targeting only selected circles in the upcoming auctions. Jio has sufficient assets. Only Vodafone and Idea will be putting in effort to win the spectrum assets in the circles where they don\\'t have the ability to rollout 4G services. So, as far as upcoming auction is concerned only Vodafone and Idea will benefit for the spectrum they will acquire. I don\\'t think smaller telcos even including Reliance Communication or others will bid in the upcoming auctions.Q: If you compare Bharti Airtel and Reliance Jio, at that 1 percent who stands out over here given the kind of capital expenditure, given the kind of liberalisation that they both have independently seen?Soni: They have good spectrum assets in their cities to offer the 3G or 4G services. Jio will stand to benefit with lower spectrum usage charge. However in the overall scheme of things we believe that it is not a major factor. I think the ability to offer good quality data services and good internet experience is going to change the industry landscape may be in favour of Jio over the time when Jio launches its operations. However as such the lower spectrum usage charge is not going to really benefit you in terms of lower cost per minute.