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Vodafone India seeks clarity on new SUC regime

Vodafone India has written to MF Farooqui, Secretary, Department of Telecom, seeking clarifications on the new spectrum usage charge regime cleared by Empowered Group of Ministers.

Vodafone said it has “some reservations on the effectiveness of the revised regime” in fully addressing some of the “fundamental underlying issues and concerns” on the high level of SUC, but appreciated the decision of the Government. It also requested that since the auctions due to commence on 3 February 2014, the details of the decision be notified formally as a part of the Notice Inviting Applications or NIA.

Vodafone said: “It is Vodafone’s understanding that as per the E-GOM decision, if VIL (Vodafone India) acquires additional spectrum in the auctions scheduled to commence in February 2014, the same will attract SUC at 5% AGR and a weighted average SUC will be charged on VIL’s existing allocations.

To illustrate, if VIL acquires additional 5MHz 1800MHz spectrum, in say Delhi service area, the same will attract an SUC of 5%AGR. VIL already has 10MHz 900/1800MHz spectrum for which the company is paying SUC at 6%AGR.  Applying the weighted average approach as has now been approved by the Hon’ble E-GOM, it is understood that VIL will pay 5% AGR on 5MHz of the freshly acquired 1800MHz and 6% on existing allocation of 10MHz, i.e. a weighted SUC of 5.7% AGR.”

However, Vodafone said, the government must confirm that this is exactly how the dice would roll.

Vodafone also noted that it had acquired 2.1GHz 3G spectrum in 2010. It said it was in favor of using the same formula for the previous allocation of 3G as well.

“The weighted average approach approved by the Hon’ble E-GOM was also considered by an Inter-Ministerial Committee in 2008 when the issue of SUC for 2.1GHz/3G spectrum was being discussed. Now that the Hon’ble E-GOM has approved this approach, it is only just and fair that the same approach be also extended to the 2.1GHz/3G spectrum with effect from the date of allocation of such spectrum.

In case of stand-alone 2.1GHz/3G, the rate applicable for 3% AGR under the NIA. Using the weighted average approach, the existing holding would be charged at SUC rate as per the applicable slab and 2.1GHz/3G spectrum would be at 3% AGR. To illustrate, in case a service provider who was holding 6.2MHz 900/1800MHz spectrum acquired 5MHz of 2.1GHz spectrum in the 2010 auctions, then applying the weighted average approach as has now been approved by E-GOM, the service provider will pay 4%AGR on 6.2MHz and 3% on 5MHZ, i.e. a weighted SUC of 3.6% AGR.”

Vodafone also pointed that TRAI had actually recommended SUC at 1% AGR for both 2.1GHz/3G as well as BWA. Since there is virtually no distinction between the services being offered on 2.1GHz/3G and BWA – as both are classified as mobile broadband, the Government, going forward, should adopt the same SUC approach for both 2.1GHz /3G as well as BWA, i.e. for both the spectrums, the SUC be applied at 1% AGR with a weighted average for existing spectrum allocations in 900/1800MHz.

Vodafone also pointed out that when it surrenders and repurchases spectrum when its licenses expire, the spectrum usage charge would fall, but wanted the government to confirm the same.

“It is VIL’s understanding that at the time of extension, the existing allocations of 900/1800MHz spectrum will be removed from the slab resulting in a change in the slab rate for the spectrum acquired in November 2012. Spectrum acquired/re-assigned at market discovered/related rates, will attract SUC at 5% of AGR.

To explain and illustrate that in case of a service provider who was holding 6.2MHz 900/1800MHz spectrum and further acquired 1.25MHz 1800MHz spectrum in the November 2012 auctions, the currently applicable SUC is as applied on holding of 7.45MHz (5%AGR). However, at extension, say, in December 2015, the existing allocation of 6.2MHz will be removed from the slab and the applicable slab rate for the spectrum acquired in November 2012, will fall in the lowest slab of upto 4.4MHz, i.e. 3% AGR.  If the service provider is reassigned the same 6.2MHz at SUC of 5%AGR, then applying the weighted average approach, the service provider will pay 3% on 1.25MHz and 5%AGR on 6.2MHz and, i.e. a weighted SUC of 4.7% AGR,” it noted.

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