Note on Spectrum Charges

The first licenses for cellular mobile telephone services were awarded in 1994 for 8 cellular operators in four metro cities. The operators were bound by a ceiling tariff and call charge, and were required to pay a license fee spread over ten year. The annual payment ranged from a minimum of Rs.1 crore in the first year to Rs.24 crore per year in the seventh year for various metros. More licenses were awarded in 1995 based on a bidding process. The bids were based on license fee spread over a ten year license period but did not include spectrum charges. Charges for spectrum were payable separately and these licensees were charged for spectrum at Rs.4,800 per voice channel and Rs.1200 for each additional station. 2. In the year 1999, NTP-99 was announced. The existing

operators (including basis service operators) were permitted to migrate to provide cellular mobile services with effect from 1st August, 1999 on payment of license fee and spectrum charges. At this point of time, the following three charges were levied:(i) (ii)
i.

entry fee based on a bidding process; charges for spectrum (at the present rate); revenue sharing (collected as a license fee).

3.

In 2002, licenses were issued to a fourth cellular operator On 27th October, 2003, TRAI recommended that the Cabinet approved the recommendations of the TRAI with

based on bidding for the entry fee. 4. 5.

regard to implementation of the Universal Access Services License regime (for basis and cellular services) and authorized DoT to finalize the details of implementation including the calculation of the entry fee depending on the date of payment based on the principles given by TRAI in its recommendations. 6. A GoM constituted for the purpose made certain

recommendations. Cabinet approved the recommendations on release of adequate spectrum, namely,

(i)

DoT and MoF would discuss and finalize the pricing formula for spectrum which will include incentive for efficient use of spectrum.

(ii)

the allotment

of

additional spectrum would be

transparent, fair and equitable; and (iii) the long term (5-10 years) spectrum requirements would be worked out by DoT. 7. It is therefore clear that there are three separate concepts; (i) (ii) (iii) 8. (i) entry fee; charges for spectrum; revenue share. Entry Fee: The present entry fee is based on the

highest bid received in 2001, namely Rs.1,651 crore if operating over the entire country. DoT has taken the stand that entry fee is not in the nature of spectrum charges or license fees. (ii) Charges for spectrum: Currently, spectrum charges

are fixed at 2 per cent, 3 per cent or 4 per cent of Adjusted Gross Revenue (AGR) depending upon the spectrum bandwidth. The rate goes up from 2 per cent to 4 per cent as the bandwidth increases from 4.4 MHz start-up spectrum is allocated as part of the license. Initial allotment is up to 4.4 + 4.4 MHz for GSM based systems and upto 2.5 + 2.5 MHz for CDMA based systems. It is also provided that additional spectrum may be considered after ensuring optional and effective utilization of the spectrum allotted. (iii) Revenue Share (also described as license fee):

Currently, revenue share is a percentage of AGR, with effect from 1.4.2004 the share is 10 per cent for category A, 8 per cent for category B and 6 per cent for category C. 9. This note does not deal with the need, if any, to revise entry

fee or the rate of revenue share. This note deals with spectrum charges for 2G spectrum. 10. Spectrum is a scarce resource. The price for spectrum

should be based on its scarcity value and efficiency of usage. The most transparent method of allocating spectrum would be through auction. The method of auction will face the least legal challenge, if Government is able to provide sufficient information on availability of spectrum, that would minimize the risks and, consequently, fetch better prices at the auction. The design of the auction should include a reserve price. 11. The auction could be for a one-time payment for the

additional spectrum at an annual rent for the additional spectrum. Once the price is discovered, additional spectrum should be allocated to all bidders at that price. 12. In addition, if a licensee sells his license (including the

spectrum) to another person, it could be stipulated that the license should share with the Government a part of the 13. This leaves the question about licensees who hold spectrum

over and above the start up spectrum. In such cases, the past may be treated as a closed chapter and payments made in the past for additional spectrum (over and above the start up spectrum) may be treated as the charges for spectrum for that period. However, prospectively, licensee should pay for the additional spectrum that they hold, over and above the start-up spectrum, at the price discovered in the auction. This will place old licensees, existing licensee seeking additional spectrum and new licensees on par so far as spectrum charges are concerned. Sd/(P. Chidambaram) Finance Minister 15.1.2008 Prime Minister