DoT scraps spectrum usage charge floor rate, relief to telcos

The Department of Telecommunications (DoT) has scrapped the 3% floor on spectrum usage charge (SUC), a move that will be a big relief to telcos as it would sharply reduce their future outflows towards these statutory fees.

“The weighted average is to be derived by the sum of the product of spectrum holdings and applicable SUC rate, divided by (a telco’s ) total spectrum holding,” the DoT said in an order, dated June 21, on SUC computations.

“Unlike earlier SUC computation orders, there is no mention of the 3% floor rate this time round, which implies it has been removed,” said a senior executive of a top telco..

Telcos had recently told DoT that merely scrapping the SUC for airwaves acquired in future spectrum auctions –– starting with the upcoming 5G sale next month — would be meaningless if the SUC floor rate, equivalent to 3% of adjusted gross revenue (AGR), remained.

They had pointed out that scrapping the SUC for airwaves bought in the upcoming sale would not effectively cut telcos payouts as they would still have to shell out a minimum 3% of AGR, even after they buy spectrum in future auctions which do not attract any SUC.

The 3% floor had been fixed by the DoT back in 2016 to protect government revenues as the SUC at that time had been lowered to encourage telcos to participate strongly in that auction.

At present, SUC is computed via a complex weighted average formula for telcos with a mix of administratively allocated spectrum and those acquired through auctions.

The weighted average formula was designed to ensure that as operators acquire more airwaves in auctions, their overall SUC outflows would come down from say 4.5-5% to 3%. But with the scrapping of the SUC floor, a telco’s total outflows toward spectrum charges could now drop well below 3% of AGR.