GSM players face Rs 25k-crore hit on one-time fee

Just four days before the much awaited 2G spectrum auction, the Cabinet on Thursday cleared a proposal to impose a one-time charge on incumbent GSM operators' spectrum beyond 4.4 MHz.

It deferred a decision on imposing a one-time fee on spectrum beyond 2.5 MHz with CDMA players, because its pricing could not be determined by the coming 2G auction.

That is because there are no bidders for this band in the auction, with both Videocon and Tata Teleservices having pulled out.

According to a DoT (department of telecom) calculation, operators, including Bharti Airtel, Vodafone, Aircel, Idea Cellular, and the state-owned BSNL and MTNL, would have to fork out Rs 24,989 crore (Rs 249.89 billion) as a result of the decision.

However, nearly half the burden (Rs 11,573 crore or Rs 115.73 billion) will fall on the financially strapped government telcos.

Based on Cellular Operators Association of India (COAI) estimates, GSM operators would have to fork out much less i.e. around Rs 19,400 crore or Rs 194 billion, including Rs 7,960 crore (Rs 79.6 billion) by the two PSUs.

The PSUs have already asked for a package from the government to make the payment.

The demand has been endorsed by the empowered group of ministers on telecom and a Cabinet note on this is being prepared.

GSM operators have to pay the auction-determined price for the spectrum they hold beyond 4.4 MHz, prospectively from January 1. However, telcos that have spectrum beyond 6.2 MHz have to pay retrospectively from July 2008, when the Cabinet took the decision.

But the payment will be based on the 2001 price of Rs 1,658 crore or Rs 16.58 billion, indexed at the State Bank of India prime lending rate. From January 1, they have to pay the auction price.

Speaking at a press conference after the Cabinet meeting, Finance Minister P Chidambaram clarified, "The DoT will work out the pricing for the one-time

fee for CDMA players, as it cannot be determined by the forthcoming auction.

"The DoT has been requested to come back to the Cabinet regarding the implementation of the decision regarding CDMA," he added.

DoT officials said an interim one-time fee for CDMA would be determined, after which new rules would be formulated for the re-auction of spectrum.

That would be the final price for one-time CDMA spectrum over 2.5 MHz.

Earlier, the government was expecting to get Rs 5,938 crore (Rs 59.38 billion) from CDMA operators based on the auction base price. The COAI estimated they would have to pay Rs 6,400 crore (Rs 64 billion).

Chidambaram added the government had targeted Rs 30,000-crore (Rs 300-billion) revenue from the one-time fee and the auction of spectrum.

The auction starts on November 12.

However, top government sources said they were not expecting more than Rs 20,000 crore (Rs 200 billion) for the financial year -- far short of Chidambaram's expectation.

Chidambaram said licensees would be given the option to surrender spectrum beyond 4.4 MHz for GSM if they did not want the one-time fee.

The licensees would also be given the opportunity to pay 33 per cent upfront and the rest through instalments with 9.75 per cent interest.

Rajan Matthews, COAI director general, said, "It is another nail in the coffin for us.

"Our licences are up for renewal in the next two-four years, so most of us will have to pay the entire amount upfront. "The hit on us would be severe but CDMA players are sitting pretty.

"Their base auction price will go down while we will pay high prices".

Said Ashok Sud, secretary general, AUSPI, the association that lobbies for CDMA operators, "It is unfair to compare the suffering CDMA players with the GSM operators.

The government should consider reducing the reserve price for the CDMA auction so that new players enter."