DoT drops SUC floor rate, giving telcos some relief

The Department of Telecom (DoT) has eliminated the 3 percent floor on the spectrum usage charge(SUC), which will be greatly appreciated by telcos as it will significantly decrease their future payments for these statutory fees.

In a directive dated 21 June, the DoT stated on SUC figures that, "the weighted average is to be computed by the sum of the product of spectrum holdings and relevant SUC rate, divided by a telco's total spectrum holding."

It is also anticipated that the decision will increase telecom participation in the future 5G spectrum sale because operators would realise significant yearly SUC cost reductions, particularly if they made aggressive bids for inexpensive 26 GHz mmWave airwaves.

 Lt Gen Dr S P Kochhar, DG, Cellular Operations Association of India(COAI) said, "We welcome the much-awaited DoT order regarding the levy of SUC charges for spectrum in 600 MHz, 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz 2500 MHz, 3300 MHz and 26 GHz bands. The order will provide clarity to telecom service providers for the upcoming auctions."

Reliance Jio, Bharti Airtel and Vi are all represented by COAI.

DoT fixed the 3 percent floor to protect government revenue in the year 2016. SUC during that time had been decreased to motivate telecoms to participate actively in that auction. However, if the SUC floor is eliminated , a telco's overall outlays for spectrum costs may fall much below 3% of Adjusted Gross Revenue (AGR), especially if they purchase significant amounts of 5G airwaves.

Operators had recently informed the DoT that simply getting rid of SUC for airwaves purchased in upcoming spectrum sales, commencing with the 5G auction next month, would be useless if the SUC floor rate, which equates to 3 percent of a telco's AGR remained in place.

According to the auction regulations, carriers pay SUC based on the quantity and timing of retained airwaves on a weighed average basis. Over the years, the government has decreased SUC. Therefore, with the absence of the 3 percent floor, if a carrier purchases a large number of airwaves in the upcoming auction that generate zero SUC, their overall payouts on this score may drop as low as 1-2 percent of Adjusted Gross Revenue.