attachments to pil in sc (feb. 24, 2012)
TRANSCRIPT
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DO. O.10709/FS/2007
Finance Secretary
Department of Economic Affairs
Ministry of Finance
Government of India
New Delhi
Tel: 23092611, 23092555, Fax: 230940
Dr. D. SUBBARAO
November 22, 2007
Shri D.S. Mathur,
Secretary
Department of Telecommunications
Ministry of Communications and Information Technology,
Sanchar Bhavan,New Delhi
1. During the presentation on the Spectrum Policy to the
Cabinet Secretary on 20 November, 2007, you had mentioned
among other things, that (i) three CDMA operators were given
crossover license for GSM operations (ii) the fee for this license
was determined at Rs.1600 crore (for all India operations with pro-
rata determination for less than all India operations), and (iii) that
one of the licensee has already paid the license fee.
2. That purpose of this letter is to confirm if proper procedure
has been followed with regard to financial diligence. In particular, it
is not clear now the rate of Rs.1600 crore, determined as far back
as in 2001, has been applied for a license given in 2007 without
any indexation, let alone current valuation. Moreover, in view of
the financial implications, the Ministry of Finance should have
been consulted in the matter before you had finalized the decision.
3. I request you to kindly review the matter and revert to us as
early as possible with responses to the above issues. Meanwhile,
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all further action to implement the above licenses may please be
stayed. Will you also kindly send us copies of the letters of
permission given and the date?
Yours sincerely,
Sd/-
(D. Subbarao)
Copy to: (i) Shri K.M. Chandrasekhar, Cabinet Secretary,
Rashtrapati Bhavan, New Delhi
(ii) Shri Rohit Kansal, Private Secretary to Finance
Minister, Ministry of Finance, North Block, New Delhi.
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Secret
Government of India
Ministry of Communications &
Information Technology
Department of Telecommunications
Sanchar Bhavan, New Delhi-110 001
D.S. Mathur
Secretary
D.O. No.20-165/2007-A.S-I
Dated: November 29, 2007
Dear Shri Subbarao,
Kindly refer to your D.O. letter No.10709/FS/2007 dated 22nd
November, 2007 on use of dual technology.
As per Cabinet decision dated 31st October, 2003, accepting the
recommendations of Group of Ministers (GoM) on Telecom
matters, headed by the then Honble Finance Minister, it was inter
alia decided that The recommendations of TRAI with regard to
implementation of the Unified Access Licensing Regime for basic
and cellular services may be accepted. DoT may be authorized to
finalize the details of implementation with the approval of the
Minister of Communications & IT in this regard including the
calculation of the entry fee depending on the date of payment
based on the principle given by TRAI in its recommendations. In
terms of this Cabinet decision, the amendment to NTP 99 was
issued on 11th November 2003 declaring inter alia that for
telecommunication services the license for Unified Access (Basic
and Cellular) services permitting licensees to provide Basic and/ or
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Cellular Service using any technology in a service area shall be
issued.
The entry fee was finalized for UAS regime in 2003 based on the
decision of the Cabinet. It was decided to keep the entry fee for
the UAS license the same as the entry fee of the fourth cellular
operator, which was based on a bidding process in 2001.
The dual technology licenses were licenses were issued based on
TRAI recommendations of August, 2007. TRAI in its
recommendations dated 28th August, 2007 has not recommended
any changes in entry fee/ annual license fee and hence no
changes were considered in the existing policy.
With regards
Yours sincerely,Sd/
(D.S. Mathur)
Dr. D.Subbarao
Finance Secretary
Department of Economic Affairs
Ministry of Finance
North Block
New Delhi 110001
Handwritten note in FS office
(May please see at Dak Stage. Our letter is at F/X. No reply as
why a matter with financial implications has not been referred to
MoF. Will put up on file.
Sd/-
illegible)
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MINISTRY OF FINANCE
Department of Economic Affairs
Subject: Spectrum Policy
References: (i) Letter No. 10709/ FS/2007 dated 22.11.2007 from
FS to Secretary, Telecom
(ii) Reply received from Secretary, Telecom D.O.
No .20-165/ 2007-AS-I dated 29.11.2007
FM had instructed that the prolific Press reports over the last two
months relating to pricing of spectrum and the "Telecom Wars"
may be tracked.
02 . The Press reports relate to a variety of issues. These
include:
DoTs decisions on the pending applications for Licenses (forwhich a deadline of September 25th was declared on
October 1st 2007 by DoT);
2G and 3G Spectrum: the quantum available, the methods of
allocation and pricing thereof;
DTH and Broadband coverage;
TRAI recommendations on the subject at different times on
the above;
Views of Competition Commission on number of players in
Telecom.
The common theme underlying all the issues relate to a range of
technologies now available under the rubric of Telecom - from
telephony, video, television to broadband DTH etc. (In other
words, transmission ofVoice, Mail, Data and Broadcasting through
hand held mobile devices). The radio frequency to be used for the
technology is scarce. The media interest in DoT and its decisions
is on account of its being the custodian of the radio frequencies
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spectrum, responsible for its allocation as well as the Authority to
issue licenses to operators in the Telecom sector.
03. A position paper has been prepared on the most contentious
issue that is currently enjoying public attention, i.e. allocation of
additional licences and 2G Spectrum to existing and new entrants.
The draft of the position paper was discussed with FS and the final
draft is enclosed.
04. The full Telecom Commission was scheduled to meet today.
However, the meeting has now been postponed to 15th January
2008. Finance Secretary has desired that I may represent him in
the meeting.
Sd/-
(Sindhushree Khullar)Additional Secretary (EA)
09.01.2008
FS
FM
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Draft (Revised 3.1.2008)
DEPARTMENT OF ECONOMIC AFFAIRS
Position Paper on Spectrum Policy
References:
(i) Letter No.10709 / FS/ 2007 dated 22.11.2007 from FS to
Secretary, Telecom.
(ii) Reply received from Secretary, Telecom - D.O. No.20-165/2007-AS-I dated 29.11.2007.
(iii) Agenda for the Cabinet dated 31stOctober2003
(iv) New Telecom Policy 1999 and amendment dated 11th Nov.
2003.
Present Arrangements
01. The Statutory basis for grant ofwireless license:
The Indian Telegraph Act, 1885 (ITA, 1885) and rules made
thereunder provide statutory basis for grant of licences by the
Central Government for establishment, maintenance orworking of
wireless apparatus, equipment and appliances. The Indian Wireless Telegraphy Act, 1933 (IWTA 1933) and
rules made thereunder, provide the Central Government with
powers to grant licences for possession of such wireless
apparatus, equipment and appliances.
Wireless Planning and Coordination (WPC) Wing of Ministry
of Communications & IT exercises powers of the Central
Government for grant of such licences under Section 4 of the ITA,
1885 and Section 5 of IWTA 1933.
1.1 The chronology of Service Licence procedures is at
Annexure-I.
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02. In 2003, the Cabinet decided to allow licensees to provide all
telecom/ telegraphic services using any technology, and also
approved an addendum to NTP-99 enabling
(i) Licensees to migrate to Unified Access Service (UAS)
License; and
(ii) Government to issue new UAS Licences.
[Under a UAS License, the Licensee can provide wire line
and/ or wireless services. The allocation of spectrum, if
required, is subject to availability]
3.1 The Cabinet also approved the GoM recommendations on
release of adequate spectrum needed for the growth of the
telecom sector. GoM recommended inter alia
(1) The Department of Telecom and Ministry of Finance would
discuss and finalise spectrum pricing formula, which will
include incentive for efficient use of spectrum as well asdisincentive forsub-optimal usages.
(2) The allotment of additional spectrum be transparent, fair and
equitable avoiding monopolistic situation regarding spectrum
allotment/ usage.
(3) The long term (5/10 years) spectrum requirements along with
time frames would also be worked out by Department of
Telecom.
3.2 In addition, Cabinet approved, that DoT may be authorized
"to finalise the details of implementation with the approval of the
Minister of Communications and IT in this regard, including the
calculation of the entry fee depending upon the date of payment,
based on the principles given by TRAI in its recommendations".
The Agenda Note for the Cabinet dated 31st October 2003 is at
Reference (iii) (Encl.)
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04. Currently, Government gets payment/revenue from Unified
Access Service License (UAS) holders of both GSM and CDMA
technology under three streams/ routes.
(i) Entry Fee fixed on the basis of highest bid received in 2001
auction of licenses (Rs.1651 crore if operating over the
entire country corresponding to circle-specific fees).
(Entry Fee was fixed on the basis of the highestbid
received in the license auction in 2001. There were
three rounds of bids in 2001. The highest bid in the
first round was used as the reserve price for the
secondroundand the higher price in the second round
was used as the reserveprice for the thirdround. The
bid was finally closed in the third round. DoT states
that this is not in the nature of Spectrum charges or
License Fee.)
(ii) (a) Spectrum charges fixed at 2%, 3%, 4% of AdjustedGross Revenue (AGR) depending on the Spectrum
Bandwidth. Separate criteria exist for GSM and CDMA
operators. A detailed table indicating the range of spectrum
charges and the allocated bandwidth is placed in Annexure
II(a).
(b) Start up Spectrum allocated as a part of the license
linked to subscriber base. (Annexure II(b)).
(At present initial allotment is in accordance with the
relevantprovisions of the Service License Agreement.
Clauses 43.5(i) and43.5(ii) of the Service License of
up to 4.4 MHz + 4.4 MHz shall be allocated in the case
of TDMA based systems @ 200KHz per carrier or 30
KHz per carrier or a maximum of2.5MHz + 2.5 MHz
shall be allocatedin the case of CDMA base systems
@ 1.25 MHz percarrier, on case by case basis subject
to availability".
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Additionalspectrum beyond the above stipulation may
also be considered for allocation after ensuringoptimal
and efficient utilization of the already allocated
spectrum taken into account all types of traffic and
guidelines/criteria prescribed from time to time")
(iii) Revenue share as percentage of Adjusted Gross
Revenue (AGR)
[In 2001 spectrum charges for Cellular/ Basic/ WLL services
were changed over to revenue share w.e.f 1.8.1999, the
date ofimplementation of NTP 1999. The license fee is paid
as a percentage of Adjusted Gross Revenue (AGR) earned
by all operators except for Pure Value Added Service
Providers, Voice Mail, E-Mail and Internet Service Providers,
as definedin the License Agreement]
4.1 The rates of License Fee (Revenue Share) for Basic/ UASL
and CMTS services inclusive of universal service levy are as
under:
Category Service Rate of
license fee
(1.8.99 to
24.1.2001)
Rate of
license
fee* (from
25.1.2001
to
30.3.2004)
Rate of
license
fee* (wef
1.4.2004)
A **
Cellular /
Basic /
USAL
Provisional
license fee
as revenue
share of
15% of
AGR (8%
for A&N
Islands, and
J&K)
12% 10%
B Cellular /
Basic /
UASL
10% 8%
C Cellular /
Basic /
UASL
8% 6%
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Note:
* The License Fee includes the contribution for Universal Service
Obligation Fund as USL which is 5% of AGR.
** Forthe first two circle cellular operators (license awarded before
1999) there is an additional relief of 2% for four years w.e.f.
1.4.2004. This is subject to a minimum of equivalent to the
contribution for USO Fund and this is 5% of AGR.
05. Policy objectives in fixing Entry Fee, Licence Fee and
Spectrum charges
Making telecom services accessible to all.
Efficient allocation of a scarce good (Spectrum) owned by
government
Revenue maximization. The levies are Non-Tax revenues of
government.
Options before us
06. (?) Review Entry Fee:
6.1 The entry fee regulates the number of service providers. As
of July 2007 there are over180 licensed Cellular and Unified
Access Service providers in 23 telecom service areas. Six to
seven million subscribers are being added on an average to
the network every month. 159 licenses have been issued for
providing Access Services / CMTS / UASL / Basic. The
numberof service providers in each service area with their
market share as on quarterending June 2007 is in Annexure
III.
6.2 TRAI recommendations (August 2007) do not favoura cap
to be placed on the number of Access Service providers in
any service area.
6.3 Given the fact that there are reportedly over575 applications
pending with DoT (including 45 new applicants) there is a
case for reviewing the entry fee fixed in 2001. This is an
administratively fixed fee. Therefore any change should be
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governed by transparent and objective criteria applicable
uniformly to all new entrants.
07. (?) Review Revenue share percentages:
7.1 There has been a persistent demand for reduction of
revenue share as percentage of AGR from the Industry
Associations. The Departmental Sub-Committee chaired by
Member (Finance), DoT recommends that the present
revenue share rates on License fee may remain. Revenue
implications of revising revenue shares on alternate
scenarios are at Annexure IV.
7. 2 Revenue share as a percentage ofAGR is a fee forLicence
and is linked to the subscriberbase. The AGR is part ofthe
normal profits ofthe operator. The standard argument of the
Industry is that an increase in revenue share erodes their
margins forcing them to pass on the cost to thesubscriber/customer thereby compromising the target of
expanding coverage.
7.3 There is strong case for revising the rates of revenue share
percentages for both existing Licensees and new entrants
because intense competition and aggressive subscriber
acquisition by various operators will ensure that tariffs,
particularly for pure telephone usage alone will be beaten
down. It is a widely known fact that profit margins are mostly
on value added services and not on telephone calls.
7.4 The alternative methods of revising the percentage revenue
share based on AGR, for Licence Fee to be paid annually,
could be:
(a) Indexed to growth of the sector; or
(b) Auction based on transparent rules. The highest/
second highest bid for percentage of revenue share
would be the successful bidder.
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08. (?) Review Spectrum Charges:
8.1 The most contentious issue relates to spectrum allocation.
There is no disagreement that the price charged for
spectrum should be based on its scarcity value, efficient
usage and that the process of allocation should be
transparent and fair. The payment is for a real economic
resource. It is not a fee. According to DoT it is closer to
royalty charged on Coal, Crude and Natural Gas.
8.2 Additional spectrum as available has to be allocated to
(a) Existing Licensees in GSM;
(b) Existing Licensees in CDMA;
(c) New applicants for Licenses in GSM; and
(d) New applicants for Licenses in CDMA or any
combination of the two technologies.
8.4 The most transparent method of allocation of spectrumwould be by auction. However, there are two caveats to the
auction method.
(a) The ways in which the existing licensees in GSM and
CDMA would be eligible to participate in the auction vis-
a-vis the new entrants; and
(b) The advantages and disadvantages of the method itself.
A detailed table is placed at Annexure V.
The possible non-optimal outcomes can be taken care of by
prescribing suitable rules of auction before the bid in a
transparent manner applicable to all eligible bidders. Any
other method for allocating spectrum, being a scarce
resource, would be economically inefficient.
09. The TRAI recommendations August 2007 suggested a Multi-
disciplinary committee to be constituted consisting of
representatives from DoT/TEC, TRAI, WPC Wing, COAI, and
AUSPI to frame new spectrum allocation criteria.
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9.1 The efficient usage of spectrum is a technical issue. It is learnt
that a Department Committee headed by Additional Secretary
(Telecom) has recently given recommendations to DoT on the
technical criteria for allocation of spectrum based on TRAI
recommendations, 2007. In addition, the TEC has also made
recommendations on the technical criteria for allocation of
spectrum. However, the details of these recommendations are
not available. Nevertheless, regardless of the allocation
criteria, auction has been recommended with transparent
rules as the most suitable method of allocating spectrum. The
quantum, of spectrum available for auction in 2G is to be
decided by DoT.
9.2 The quantum available will have to be allocated through the
most appropriate method accepted by the Government toexisting operators as well as to the new entrants who have
applied for the same until the cut off date stipulated by DoT. A
decision is yet to be taken by DoT on this issue.
10. The foregoing discussion relates only to 2G spectrum that is
the subject matter of recent petitions to MoF and Press
Reports (Telecom Wars).
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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) entry fee based on a bidding process;
(ii) charges for spectrum (at the present rate);
(i) revenue sharing (collected as a license fee).
3. In 2002, licenses were issued to a fourth cellular operator
based on bidding for the entry fee.
4. On 27th October, 2003, TRAI recommended that the
5. Cabinet approved the recommendations of the TRAI with
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.
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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) entry fee;
(ii) charges for spectrum;
(iii) revenue share.
8. (i) Entry Fee: The present entry fee is based on the
highest bid received in 2001, namely Rs.1,651 crore ifoperating 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.
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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 thespectrum) 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
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Ministry of Finance
Department of Economic Affairs
Allotment and Pricing of Spectrum
30 January 2008
1. Minister for Communication met the Finance Minister today
on the subject of spectrum charges. Secretary, DoT, Advisor
(Wireless) and I were present. The following is the gist of
discussion.
2. FM suggested that keeping in view lessons of experience,
allotment of licenses and allocation of spectrum must be based on
solid legal grounds.
3. It was agreed that the optimum numbers of operators per
circle would be about seven. The International norm is about six. If
there are more licensees per circle, it is possible that consolidation
will take place. Government should ensure that such consolidation
happens in a healthy way without any rent-seeking.
4. It was noted that there is a mismatch in the demand and
supply of spectrum across circles. Redressing this mismatch will
be another policy imperative.
5. FM said that for now we are not seeking to revisit the current
regimes for entry fee or for revenue share.
6. The issue under consideration now is the regime for
allocation of spectrum. The following aspects need to be studied
further:
(i) The rules governing the allocation of additional spectrum
and the charges thereof, including the charges to be levied
for existing operators who have more than their entitled
spectrum.
(ii) Rules governing trade in spectrum. In particular, how can
Government get a share of the premium in the trade?
(iii) The estimate of the additional spectrum that may be
available for allocation after taking into account: (a) the
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entitlement of entry spectrum of fresh licenses: (b) the
spectrum that needs to be withdrawn from existing operators
who do not have the subscriber base corresponding to the
spectrum allotted to them; and (c) the spectrum that may be
released by Defence.
(iv)We also need to check the current rules and regulations
governing withdrawal of spectrum in the event of: (a) not
rolling over; (b) merger and acquisition; (c) trading away
spectrum.
7. Secretary (DOT) will come for a meeting with us at 12 noon
on 31.01.2008 to discuss these issues. Please make it convenient
to attend the meeting.
Sd/-
(D. Subbarao)
Finance Secretary
30.01.2008AS(EA)
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Discussion between Honble FM and Honble MOC&IT
(30th January 2008)
Salient points:
DOT and MOC&IT best judge how to go about the issue;
need to avoid legal issue
Initial spectrum linked with service licence.
Growth of service should not get stifled. At the same time,
spectrum hoarding and trading in spectrum should not be
allowed.
Additional spectrum should be allotted at proper price; Need
to discover right price for spectrum;
How to ensure availability of adequate spectrum for new
operators as well as for growth of existing operators?
In case of Mergers and Acquisitions, Government should getappropriate part of company valuation as premium for
spectrum.
2. The main issues are discussed below:
2.1 How to discover the right/appropriate price for additional
spectrum.
The best method to get the right/correct/appropriate market
price for the spectrum is the Auction. All other methods provide
only Administrative pricing of spectrum which can be reviewed
periodically based on the experience gained.
One method could be to index the bids of 2001 for different
areas, with inflation since 2001 as well as the teledensity as
prevailing 2001 and now. This amount can be taken as an
equivalent of 4.4 MHz of GSM spectrum.
Another method of valuation can be based on the population
of the area concerned, which provides the potential for total
teledensity.
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2.2 How to ensure availability of adequate spectrum for new
operators?
The total spectrum requirement for new operators would
depend on the number of operators in a given service area. As
was mentioned during discussion, a practical maximum number of
national level operators can be 7-8 with one or two regional
players.
Of course, the general view of telecom experts is that
eventually, only national level, integrated telecom players would
stay in the field. Other operators are likely to merge in the main
players or get acquired by them.
For 7-8 total operators, spectrum can be made available in
southern states, MP, Orissa and couple of other areas. In the
remaining areas, adequate spectrum can be available for all these
7-8 operators, only after defence closes their tropo links andvacates the relevant spectrum.
This also takes into account the needs of existing operators
for additional spectrum.
2.3 Withdrawal of excess spectrum:
Regarding withdrawal of excess spectrum, all the operators
have already been requested to provide the data of their active
subscribers (VLR) and traffic. Some of them have provided the
data. They can be informed that say after one year, they would be
entitled to retain only that much spectrum which is their entitlement
as per the criteria, taking into account their VLR and traffic data
then, and the balance spectrum would stand withdrawn.
For those who have not provided the data, a reminder had
already been issued and a final notice can be issued that if the
data is not provided within a week, spectrum beyond 6.2 MHz
would stand withdrawn with immediate effect.
In cases of Merger & Acquisitions, the merged entity can
retain the spectrum as per their entitlement based on total VLR
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and traffic, say three months after the merger. The remaining
spectrum would stand withdrawn thereafter.
2.4 In case of M&A, getting part of the valuation for Government
as premium for spectrum, to avoid hoarding as well as spectrum
trading.
In view of very large number of new operators, it is expected
that some of these companies might have obtained licences as
speculative venture. Hence, some Mergers & Acquisitions
(M&As) are likely to take place after some time, which de facto,
would amount to spectrum trading, as a large part of such
companys valuation may be on account of the spectrum held by
them. This spectrum trading is not desirable and needs to be
regulated.
Besides the general conditions in service licence and other
guidelines for M&As, clear and detailed Guidelines need to beevolved and announced regarding the M&As, especially the
amount of spectrum which the merged entity would be allowed to
retain along with criteria and other details in this regard,
companys valuation by consultants/valuers appointed with Govt.s
approval/concurrence; and then payment of a part of the valuation
to Govt., as premium for spectrum, etc.
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SIDDHARTHA BEHURA Government of India
Secretary Ministry of Communications & IT
Department of Telecommunications
Sanchar Bhawan, New Delhi 110 001
DO NO. L-14047/33/2007-NTC(Pt)
February 8, 2008
Dear Dr. Rao,
This has reference to our meetings regarding issues concerning
spectrum charges. As desired, I am enclosing a copy of the
Approach Paper in this regard.
2. I have sent a copy of this Approach Paper to Honble
MoC&IT and also discussed with him. He has directed that based
on the above, Telecom Commission Meeting may be called at an
early date in order to take appropriate decisions.
With regards
Yours sincerely,
Sd/-
(Siddhartha Behura)
Encl: As above
Dr. D Subba Rao
Finance Secretary
Ministry of Finance
North Block
New Delhi
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Approach Paper Department of Telecommunications
Sub: Spectrum Charges
On the broad issues concerning spectrum charges, four
rounds of discussions were held between Secretary Finance and
Secretary Telecom. Based on the above discussions an approach
paper is presented as under:
2. Spectrum Usage Charges for Initial allotment of spectrum of
4.4 MHz
2.1 Secretary (Finance) was of the opinion that auctioning is
legally possible for initial allotment of spectrum of 4.4 MHz.
Secretary (DoT) explained that auction of spectrum of 4.4 MHz
though may be legally possible but it would not be practicalproposition to auction or fixing a price for 4.4 MHz spectrum due to
following:
2.1.1 As per clause 43.5 (i) of UAS License, which provides that:
initially a cumulative maximum of upto 4.4 MHz +4.4 MHz shall
be allocated in the case of GSM based systems.
It implies that when a service provider signs UAS License he
understands that and contractually he is eligible for initially a
cumulative maximum of 4.4 MHz subject to availability.
2.1.2 120 LOIs have been issued and the Department is
contractually obliged to give them start up spectrum of 4.4 MHz
under UASL.
2.1.3 As auctioning does not assure the operators to get initial
spectrum of 4.4 MHz as per UAS License provision, auctioning
and the clause 43.5 (i) of the UASL are contradictory.
2.1.4 If the new entrants get spectrum by auctioning, they may
be paying more as compared to the existing players. Hence (a)
auction will not ensure level playing; (b) also, as the cost to the
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new entrants would be more, they may not be able to offer
competitive tariff.
2.1.5 Also 4.4 MHz is a part of the license agreement; no
spectrum acquisition charge is proposed to be levied. Even if it is
priced, it will also disturb the level playing field and the present LOI
holders, who have already paid entry fee, are likely to go for
litigation. Initial entry fee for license may be construed as the de-
factor price of initial spectrum i.e. Rs.1650 crore approximately for
pan-India license.
3. Spectrum Usage Charges for additional spectrum of 1.8
MHz beyond 4.4 MHz.
The issue of levying price for additional spectrum of 1.8 MHz
beyond 4.4 MHz including auctioning was also discussed.
Secretary (Finance) desired to know whether this additional
spectrum can be priced/auctioned and if not then why.
3.1 The auction of spectrum of 1.8 MHz beyond 4.4 MHz would
not be practical due to following:
3.1.1 as per clause 43.5(ii) of UAS License which provided that
Additional spectrum beyond the 4.4 MHz may also be considered
for allocation after ensuring optimal and efficient utilization of the
already allocated spectrum taking into account of all types of
traffic and guidelines / prescribed from time to time. However 6.2 +
6.2 MHz in respect of TDMA (GSM) based system shall be
allocated to any new Unified Access Services Licensee.
3.1.2 It implies that an operator is eligible for consideration of
additional 1.8 MHz spectrum (making total of 6.2 MHz) after
ensuring optimal and efficient utilization of the already allocated
spectrum taking into account all types of traffic and guidelines /
criteria prescribed from time to time.
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3.1.3 The matter was internally discussed with the Solicitor
General, who opined that he is defending the Government cases
in various courts, where one of the main contentions is that
auction would lead to reduction of competition and will not help in
reducing the tariff and hence it would be against increase of
teledensity and affordability. These being public interest concerns,
it would be difficult to change the track at this juncture.
3.1.4 It is however, proposed to price the spectrum of 1.8 MHz
beyond 4.4 MHz upto 6.2 MHz. The TRAI in its report of August
2007 has recommended that any licensee who seeks to get
additional spectrum beyond 10 MHz in the existing 2G bands, i.e.
800, 900 and 1800 MHz after reaching the specified subscriber
numbers shall have to pay a onetime spectrum charge at the
below mentioned rates on pro-rata basis for allotment of each MHz
or part thereof of spectrum beyond 10 MHz as shown in thefollowing table.
Telecom Service Area Spectrum Acquisition charges
for 2 x .5 MHz (GSM or CDMA)
Mumbai, Delhi and
Category A
Rs.80 crore
Chennai, Kolkata and
Category B
Rs.40 crore
Category C Rs.15 crore
For one MHz of spectrum in Mumbai, Delhi or Category A
service areas, the service provider would have to pay Rs. 16 crore
as one time spectrum acquisition charge. It would amount to
approx. Rs.210 Crore for one MHz of additional spectrum, pan-
India.
3.1.5 The Department is of the view that it would be appropriate to
a levy the charge for enhancement of the quantum of spectrum
beyond the initial 4.4 MHz. For an additional spectrum of 1.8 MHz
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making a total of 6.2 MHz spectrum acquisition charge may be on
pro-rata basis i.e. Rs. 378 crores pan-India. It will be charged only
to new allottees as the existing ones have got the spectrum as per
license agreement.
4. Price of Spectrum beyond 6.2 MHz
The UASL does not explicitly provide any provision or
spectrum beyond 6.2 MHz and upto 10 MHz, however the UASL
clause 43.5(iv) provides that the Licensor has right to modify and /
or amend the procedure of allocation of spectrum including
quantum of spectrum at any point of time without assigning any
reason. Hence the spectrum beyond 6.2 MHz should be properly
priced keeping in mind the market value of spectrum.
4.1 Auction Path:Since we are not auctioning startup spectrum of 4.4 MHz
and only pricing additional allocation of 1.8 MHz as explained
earlier, therefore, we can take 6.2 MHz as threshold for
consideration for auction as this also falls beyond the provisions of
the license agreement. The following points are brought out:
2G GSM Spectrum bands are 890-915 MHz paired with 935-
960 MHz, 1710-1755 MHz paired with 1805-1890 MHz i.e,
2.5 MHz is available in 900 & 75 MHz band is available in
1900 MHz band making a total of 100 MHz. Out of this more
that 37 MHz stand allocated to the GSM service providers in
different service areas. Remaining 63 MHz, major portion of
the spectrum in 1800 MHz band is being used by Defence.
120 LOIs have been issued and startup spectrum is to be
allotted to them as well as for the growth; existing operators
should be given 6.2 MHz, subject to availability.
After this allotment, hardly any identifiable free spectrum will
be available, which is a pre-requisite for auction.
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At any given time one or two operators will be eligible for
beyond 6.2 MHz based on the subscribers linked criteria.
Hence if an auction is to be held, competition would be
limited.
Hence auctioning may not be successful in providing
optimum value due to (a) limited availability of spectrum &
(b) limited competition.
TRAI has also not recommended for auctioning of 2G
spectrum in view of the following:
Service providers were allocated spectrum at different
times of their licenses and the amount of spectrum with
them. Therefore, to decide the cutoff after which
spectrum is auctioned will be difficult and might raise
issue of level playing field.
Penetration of mobile service is to happen in semi
urban and rural areas, where affordability of the services
to the common man is the key for further expansion:
In view of all these factors, auction of 2G spectrum at this
juncture does not appears to be viable solution.
4.2 Fix Price for spectrum beyond 6.2 MHz
The following two options were considered:
Option 1
For this purpose it may be desirable to index, the entry fee of Rs.
1650 crores in the year 2003-04 (for initial 4.4 MHz) i.e. Rs. 375
crore per MHz, for inflation, potential for growth of tele-density and
revenue etc. appropriately. If we take an inflation of about 5% per
year for 4 years upto 2007-08, which would mean about 20%
compounded inflation till 2007. Therefore additional charges can
be levied at 20% of Rs. 375 crore for one MHz of spectrum i.e. Rs.
425 Crores.
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This option is not favored in view of the low value of
spectrum.
Option 2
The service area wise AGR figures per MHz for the years 2003-
04, and anticipated figure were calculated and is given at
Annexure I. It may be seen that there is an increase of about 3-5
times, if the figures of 2007-08 with 2003-04 is compared.
It is for consideration to charge x times of base price of Rs.375
crore/MHz, where x is to be decided. This will be charged to
existing as well as new entrants. Those who decide not to pay
may be asked to surrender the excess spectrum beyond 6.2 MHz
5. Enhancement of present revenue share towards spectrumusage charges
5.1 It may be mentioned that the spectrum usage charges are
levied at the rate of 2% (or 2 x 4.4 MHz). Any additional
bandwidth, if allotted, beyond 4.4 MHz and upto 6.2 MHz shall
attract 3% revenue share and 4% for upto 2 x 10 MHz of AGR
depending upon the quantum of spectrum allotted to the licensee.
5.2 It is proposed that the categorization at present used for
license fee may be used for spectrum charges also viz. Metro-I
(Delhi, Mumbai), Metro-II (Kolkata), Category A, Category B and
Category C circles and to levy spectrum charge of 8% of AGR for
Metro I, II and Category A circles and 5% for category B circles
and 4% for category C service areas irrespective of allotment of
quantum of spectrum.
5.3 With the above formulation, it is envisaged that revenue
towards spectrum charges for the year 2008-09 may be about
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Rs.3600 crores as against of about Rs.2500 crores according to
the existing revenue share formulation.
6. Mergers and Acquisition (M&A)
In the context of intra-circle merger and acquisition, TRAI in
their report of August 2007 have considered various factors,
namely Definition of Market Assessment of Market Power criteria
and Methodology, Determination of minimum number of access
service providers in a post merger scenario and spectrum cap of
the merged entity. The TRAI Recommendations had been
considered by Telecom Commission. Some of the issues have
been referred back to TRAI for consultation. In view of very large
number of new players, it is expected that consolidation is likely to
take place in the industry in future.
6.1 In view of this, we need to have clear guidelines relating to
M&A. We also need to consider fees on account of transfer of
spectrum to the merged entity. In the event of M&A the transfer
charge to the Government has not been considered by TRAI in
their recommendation of August 2007. This is a complex issue
requiring detailed deliberation and consultation. Therefore the
issue of quantum of fees which the Government would get on
account of transfer of spectrum during M&A needs to be referred
to TRAI. Based on the Recommendations of TRAI on the above
issue, DoT will take appropriate decision with a specified time
period and issue clear and transparent guidelines for M&A
including transfer charges for spectrum.
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11 February 2008
Ministry of Finance
Department of Economic Affairs
____________________________________________________
Sub: Telecom Fees and Charges and Spectrum Pricing
1. After the meeting between the Finance Minister and the
Minister for Communications on 30 January 2008, there were
three rounds of discussion between the Finance Secretary and
Secretary (Telecom). Secretary (Telecom) sent a note (dated 8
February 2008) summarizing the discussion (copy attached). This
sequel note from DEA attempts to set out the current position
regarding telecom fees and charges and pricing of spectrum, and
defines the issues for decision:
2. Currently, there are three types of levies on Unified Access
Service License (UASL) holders of both GSM and CDMA
technologies. These are:
(i) Entry fee
(ii) Licence fee (as a share of revenue)
(iii) Spectrum Usage Charge (as a share of revenue)
Entry Fee
3. Entry fee is a fixed upfront charge and is circle-specific. If an
operator operates in all the 23 telecom circles of the country, the
entry fee aggregates to Rs.1650 crore. This entry fee was fixed on
the basis of a TRAI recommendation of October 2003 that entry
fee for UASL be pegged in the highest bid price of the 2001
auction. This fee has not been revised since 2003. The 121
licenses issued in January 2008 were also based on this fee
(There are already 180 UASL licenses across the 23 telecom
circles). DoT has taken the position that entry fee is not in the
nature of license fee or spectrum usage charge.
License Fee
4. Currently, license fee is levied as a share of the Adjusted
Gross Revenue (AGR). With effect from 1.4.2004, the license fee
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has been 10% of AGR for Category-A, 8% of AGR for Category-B
and 6% of AGR for Category-C. The yield from this levy is
estimated at Rs.8300 crores for 2007/08 and Rs.11000 crores for
2008/09.
Spectrum Usage Charge
5. Spectrum usage charge is pegged to the bandwidth and is
calibrated as a percentage of the AGR. The range is from 2% of
AGR for 4.4 + 4.4 MHz, 3% for 6.2 + 6.2 MHz and 4% for 10 + 10
MHz in the case of GSM operators. Spectrum usage charges is
marginally different for CDMA operators. For both GSM and
CDMA operators there is extra rate of 5% and 6% for spectrum of
frequency beyond 10 MHz. But spectrum of this frequency has not
yet been allotted. The revenue yield from spectrum usage charge
is estimated at Rs.2000 crores for 2007/08 and Rs.2500 crores for
2008/09.
Allocation and Pricing of Spectrum Current Regime
6. Under the current regime, spectrum is allotted free of cost. A
start-up spectrum of 4.4 + 4.4 MHz is allotted along with the
license or at the earliest time spectrum becomes available after
the issue of a license. Thereafter, eligibility for additional spectrum
is linked to the subscriber base. As soon as an operator reaches a
prescribed subscriber base, additional spectrum corresponding to
the increased subscriber base is allotted to him subject to
availability of spectrum.
7. This Note does not deal with the need, if any, to revise the
entry fee or license fee. This note addresses issues surrounding:
(i) revision of spectrum usage charge; (ii) pricing of spectrum; and
(iii) allocation of spectrum. This entire discussion covers only 2G
spectrum.
Revision of Spectrum Usage Charge
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8. As indicated in paragraph-5, spectrum usage charge is
linked to the bandwidth, and is levied at the rate of 2%, 3% and
4% depending on the quantum of spectrum allocated to an
operator.
9. A levy linked only to the bandwidth allotted to an operator
which is uniform across the country does not capture the circles
specific scarcity value of spectrum. For example, there is a higher
premium on spectrum in metro circles like Delhi and Mumbai than
in the far flung telecom circles of the North East. The spectrum
usage charge should be calibrated to reflect the circle specific
premium on it.
10. The optimal way of doing this would be to categorize the
country into telecom categories based on aggregate AGR per
MHz. However, the 23 existing telecom circles in the country
already stand divided into 5 categories. Although not strictly based
on a scientific metric like AGR/MHz, the existing categorizationhas a rough correspondence to the volume of business in each
category.
11. The question is should we attempt a more scientific
categorization or stay with the existing categorization. The balance
advantage might lie in staying with the existing categorization
rather than attempting a fresh categorization. Accordingly,
spectrum usage charges could be revised from the current rate of
2%, 3% and 4% linked to bandwidth to a percentage based on
volume-of-business categorization as follows:
Proposed Revised Spectrum Usage Charge
----------------------------------------------------------------------------------------
Category Spectrum Usage Charge % of AGR
----------------------------------------------------------------------------------------
Metro-I (Delhi, Mumbai) 8%
Metro-II (Kolkata) 8%
Category-A 8%
Category-B 6%
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Category-C 4%
----------------------------------------------------------------------------------------
12. MoF and DoT are agreed on this revision. If spectrum usage
charge is revised as above, the revenue yield in 2008/09 will go up
from an estimated Rs.2500 crores to Rs.3600 crores.
Pricing of Spectrum
13. This present regime of allocation of spectrum free of charge
has failed to capture its scarcity value, yields monopoly rents to
operators, and is clearly inefficient. There is a strong and fairly
self-evident economic, business and revenue case of pricing
spectrum. DoT has also indicated that it will be possible to price
spectrum at the time of allocation in addition to levying the
spectrum usage charge.
14. The only argument against spectrum is that it will raise the
costs for operators which they will inevitably pass onto the users.Such an outcome will go against the national objective of
broadening and deepening telecom access. This is a valid
concern. However, a full or even partial pass through is not
inevitable. It can be argued that if we maintain a competitive
market, the poor will not be priced out.
15. If we decide to price spectrum, there are two options. Either
we auction it or charge a market determined fixed price. These
alternatives are discussed below:
Auction of Spectrum
16. Auctioning spectrum suggests itself is as a clear first choice.
It has several merits.
(i) Best method of discovering price
(ii) Is more transparent and provides a level playing field
(iii) Promotes competition
17. However, it will be problematic for us to adopt the auction
route at this late stage mainly for historical legacy reasons. A
number of operators have already been given spectrum free of
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charge. The spectrum available for auction, therefore, will be quite
limited (DoT has not been able to indicate the precise quantum of
spectrum that will be available for allotment). Efficient price
discovery becomes possible only if the supply is large and there
are a number of potential buyers: a thin market has clear
limitations in signaling a price. It may turn out that the discovered
price is either too low or too high. In its August 2007 report (para
2.79), TRAI too advised against auctioning of spectrum on the
ground that it will trigger issues of level playing field.
18. Auction will be viable if we can increase the quantum of
spectrum available. This can be done by withdrawing the spectrum
already allotted to existing operators and putting all of it on
auction. Both existing and new license will then bid on a clean
slate. This is evidently an extreme measure, and has significant
practical and legal implications.
Market Based Price Determination
19. If auction is ruled out, what are the alternatives for
determining an appropriate market based price for spectrum?
20. The value of spectrum embedded in the entry fee provides a
possible reference frame for pricing spectrum. Currently, 4.4 MHz
of spectrum is allotted at the entry level on payment of an entry fee
of Rs.1650 crores for pan-India operation. This translates to an
embedded price of Rs.375 crores/MHz. This price was discovered
in 2001 and fixed in 2003/04. Using this reference frame price,
there are two options for determining the current price of
spectrum.
Price Determination Option 1
21. The first option for pricing is to take this reference price and
inflate it for the cumulative inflation between 2003/04 and 2007/08.
The cumulative inflation during this period was approximately
20%. Applying this on the reference price of Rs.375 crore/MHz
yields a current price of Rs.425 crore/MHz. This is evidently too
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low and does not reflect the phenomenal change in technology
and business models during the intervening years. This pricing
model is therefore, not acceptable.
Price Determination Option 2
22. A simple single indicator of the growth in telecom business in
a given circle is the AGR/MHz aggregated across all operators in
that circle. We can estimate the number of times (multiple) the
aggregate AGR/MHz grew in each circle bet 2003/04 and 2007/08.
The reference price embedded in the entry for each circle can be
multiplied by this multiple.
23. Assume a pan-India operator, operating across all the 23
circles in the country. A rough estimate made by DoT shows that
across the country AGR/MHz has increased by 3.5 times between
2003/04 and 2007/08. So the operator will be charged Rs.1312
crore (Rs.375 crore x 3.5) on allocation of 1 MHz of spectrum foroperation on a pan-India basis. Since most operators operate only
in some of the circles, this price determination can be done on a
circle specific basis.
24. This price determined as above should be charged on both
existing and new operators. Those who do not choose to pay
should be asked to surrender the spectrum allocated to them.
25. If spectrum is not auctioned but priced as above, allocation
of spectrum will continue to have to be linked to the subscriber
base.
What amount of spectrum should be priced?
26. The next question is whether all the spectrum allocated to an
operator should be priced or only spectrum beyond the start-up
allocation of 4.4 MHz.
27. Clause 43.5(i) of the UAS License Agreement provides as
follows:
Initially, a cumulative maximum of upto 4.4 MHz + 4.4 MHz
shall be allocated in the case of TDMA based systems
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or a maximum of 2.5 MHz + 2.5 MHz shall be allocated in the
case of CDMA based systems on a case by case
basis subject to availability
28. DoT is of the view that it is not advisable / possible to price
the start-up allocation of a 4.4 MHz on the following argument.
Allocation of 4.4 MHz spectrum is part of the license Agreement.
This start-up spectrum was given free of cost in the past. The new
entrants who were given licenses in January 2008 paid the entry
fee on the understanding that they would get this start-up
spectrum would be a breach of this understanding. It will also
disturb the level playing field between the existing operators and
the new licencees. This may also trigger litigation.
29. DoT is agreeable to pricing of spectrum beyond 4.4 MHz.
However, they have suggested a differentiated pricing regime.
According to them, there should one price of spectrum between
4.4 MHz and 6.2 MHz (1.8 MHz), and another price for spectrumbeyond 6.2 MHz. In August 2007, TRAI recommended a price for
licencees who seek spectrum beyond 10 MHz. DoT wants to apply
this price for spectrum between 4.4 MHz and 6.2 MHz. for
spectrum beyond 6.2 MHz, DoT is agreeable to using the price
determined as at paragraph 22 above.
30. Ministry of Finance differs from the above position of DoT.
There is no contractual obligation to allot a start-up spectrum of
4.4 MHz to every licencee free of cost. The entire range of the
spectrum allotted should be priced. The issue of level playing field
can be addressed by charging this price even on existing
operators.
31. Moreover, the differentiated pricing suggested by DoT, viz.
one price for spectrum between 4.4 and 6.2 MHz and a different
price for spectrum beyond 6.2 MHz will be clumsy, non-
transparent and legally questionable. It will be neat and
transparent to fix a single circle-specific price for spectrum across
the entire bandwidth.
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Mergers and Acquisitions (M&A)
32. It is likely that the market will see considerable M&A activity
over the next few years. It should be Governments endeavor to
ensure that this consolidation happens in an efficient and healthy
manner. One question that arises is whether the Government
should get a premium out of an M&A transaction. Since spectrum
has not been auctioned but priced heuristically, it is likely that the
rent, if any, involved in the price of spectrum will form part of the
M&A transaction which would typically involve a host of other
assets and liabilities, is a complex task. TRAI is best positioned to
think through and advise on this issue. The ToRs to TRAI in the
regard should be: (i) What should be the guidelines for M&As
between UASL operators? (ii) Should Government get a premium
out of M&A activity? And (iii) if yes, how can this premium be
determined?
Issues for Decision
33. The following issues need to be decided in respect of 2G
spectrum.
(i) Should spectrum usage charge be revised (paragraph 9)
(ii) Should spectrum be priced? (paragraph 13, 14)
(iii) If spectrum is to be priced, is auction a viable option? (paras
16-18)
(iv)If spectrum is to be priced, is auction a viable option or is the
pricing method suggested at paragraph 23 acceptable? If
not, what is the alternate pricing model?
(v) Should the initial spectrum of 4.4 MHz be given free or
should this also be priced? (paras 27-28 & 30)
(vi)Should there be a differentiated pricing regime as suggested
by DoT or should there be a single price across the entire
bandwidth? (paras 29 & 31)
(vii) Should the issue of M&A be referred to TRAI (paragraph
32)
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Ministry of Finance
Department of Economic Affairs
Sub: Telecom Spectrum 2G & 3G
1. Discussed the attached note with FM Today.
2. On the file relating to release of spectrum by the Air Force, I
have indicated the decisions of FM regarding 2G spectrum relating
to: (i) raising the spectrum usage charges; and (ii) pricing. Those
decisions may be indicated in our response to the DCN. We must
also pursue this with Department of Telecom either in the meeting
of the Telecom Commission or outside of that.
3. On 3G, FMs view is that auction must be based on ICB. The
only stipulation we must impose is that the bidders must be pre-
qualified on the basis of prior operational exposure to the telecom
sector. If the bidder is a consortium of a foreign and a domestic
party, it should be enough if either party has operational exposure
to the sector.
4. I have orally communicated the gist of this to Secretary,
Department of Telecom. FM said that he will also speak to Ministerfor Communications.
Sd/-
(D. Subbarao)
Finance Secretary
7.4.2008
AS (EA)
Sd/-
8.4.2008
JS (Infra) OR (in cc)
Encl: As above
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Spectrum -2G, 3G & WIMAX
Notes for Discussion
After discussing with FM, I spoke to Secretary, DOT. The following
notes are for further discussion in order to crystallize DEA
Position.
I. 2G
(i) Spectrum usage charge: The scheme of increase
proposed by DOT lower than what was agreed during
consultations with MoF, Secretary, DOT says CDMA
operators not agreeable to shifting from a usage
charge linked to quantum of bandwidth (as is the
current practice) to usage charged linked to
categorization reflecting scarcity value of spectrum (as
proposed by us). Why should we fall in line?
(ii) Pricing of spectrum: DOT is agreeable to pricing of
spectrum beyond 4.4 MHz but wants this deferred till
auction of 3G and WIMax is completed. In our note, we
suggested pricing of all spectrum including spectrum
already allocated. Is there a case for deferring this
decision? Is there merit in disclosing the pricing
intention right now even if actual implementation is
deferred?
II. 3G:
(i) Everyone is agreed that the only way forward is
auction. The only issue is whether to restrict auction to
existing players or to make it a global auction.
(ii) The advantages and disadvantages of either option
are as follows:
Arguments for open global auction
1. Will avert categorization / rent-seeking
behaviour.
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2. Spectrum will be priced efficiently.
3. Wider participation will bring out convergence,
technological innovation in voice and data
services and improve the prospects of
investment in the sector.
4. The methodology is legally robust and not open
to question.
Arguments for restricting auction to existing UAS
license holders (10 players)
1. Existing players have invested in
infrastructure and therefore have a claim for
prioritization.
2. They have systems in place and can
deliver 3G services at lower incremental cost
this will enable faster and more efficient roll out.May pass on lower cost to consumers.
3. There are presently 4 to 7 operators per
Circle. Sufficient critical mass exists to ensure
competitive bidding, discourage catelization and
offer services that are of acceptable quality and
price.
4. Bids in global auction may go too high
jeopardizing viability and hence roll out. (UK
experience of open auction in 2001 unhappy
no full roll out yet).
(iv) 3G available spectrum is 30 MHz;
6 auction blocks of 5 MHz each
1 block reserved for BSNL at L-1 (highest bid) price. The rest
will be sold as per auction.
Reserve price Rs1,000 crore per block.
Translates to Rs 6,000 crore for 6 blocks.
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Expected auction price Rs 3,000 crore per block (3 times
reserve price)
Expected revenue yield Rs18,000 crore for 6 blocks.
III. WIMAX
(ii) Issues and options same as for 2G
(iii) Only the number of existing players will be about 16 as
WIMAX auction is open to ISPs also.
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Notes at page 85-86/n deals with the Draft Note to CCEA
received from Department of Telecom seeking financial
approval for Rs. 1077.16 crore for laying an alternative
communication network for the India Air Force. After the
alternative network is laid the IAF is expected to release 45
MHz of spectrum.
02. The Note was examined earlier on another file and
FSs and FMs minutes thereon have been extracted as part
of the comments to the Note on this file.
03. At this stage, the basic issues relating to pricing of
spectrum maybe raised. The discussion and
recommendations thereon may be on the basis of specific
formulation(s) received form DoT.
04. Para 4.0 of DFA has been amended based on Finance
Secretarys note dated 11th February, 2008. Amended DFA
may please be considered for approval.
Sd/-
(Bindhushree Khullar)
Additional Secretary (EA)
03.04.2008
FS.
1. This was discussed with FM today. The note used for
discussion is placed below.
2. FM agreed that spectrum usage charges should be
increased reflecting the scarcity value of spectrum as
indicated in our note of 11 February, 2008.
3. On pricing of spectrum, FMs view is that we must insist,
in principle, on pricing spectrum (beyond 4.4 MHz)
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although details can be worked out after the auction of
3Gs spectrum.
4. Please modify the OM accordingly. Please let me see it
before issue.
Sd/-
(D. Subbarao)
Finance Secretary
7.4.2008
AS(EA)
JS(Infra)
Dir(Infra)
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FILE NO.3/11/2003-INFRA
Ministry of Finance
Department of Expenditure
Infrastructure Division
New Delhi, April 6, 2008
OFFICE MEMORANDUM
Subject: Financial approval of Rs.1,077.16 crore for layingof alternative communication network for Indian
Air Force for release of Spectrum.
Ministry of Communications and Information Technology
(MoC&IT), Department of Telecommunications (DoT) may refer to
UO No.11/1/12/12006-Policy-I, dated January 29, 2008 enclosing
therewith a Draft Note for CCEA on the subject mentioned above.
Comments of Ministry of Finance (MoF) Department of Economic
Affairs (DEA) on the proposal at Para 6.1 of the Draft Note as
under:
2.0 As pointed out by DEA in the meeting of the Full Telecom
Commission, held on September 4, 2006, the proposal to
commence work on co-ordination of spectrum vis--vis Armed
Forces has been taken up prematurely, without evolving a
consensus on security issues, particularly with the Army, and tying
up budgetary provisions in advance. In absence of adequate
groundwork, there have been cost and time overruns, and the
Project, initially slated to finish by December, 2006 has got
delayed by nearly two years. Moreover, taking up implementationof the Project without first securing necessary approvals from
Competent Authority amounts to a procedural lapse, which may
not be repeated in future.
3.0. However, in view of the compelling urgency of making
available adequate spectrum for further development of 2G/3G
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services, the proposal of DoT is agreed to, subject to the following
observations:
1. DoT may take urgent steps to get the spectrum available
with Army and Navy vacated within a maximum period of
6 months, and actual implementation in this regard to
also commence within this period;
2. Pricing of the spectrum being vacated to be in such a
manner, as to not only ensure recovery of costs of the
Project, but also to ensure an adequate source of
receipts for General Revenues;
3. As regards allocation for funds, DoT may present their
case before the Planning Commission for the allocation
of the amount from within the overall authorized GBS.
4. Union Cabinet, in its meeting on October 31, 2003, inter alia,
decided that spectrum pricing would need to be decided mutuallybetween DoT and MoF so as to provide incentive for efficient use
of spectrum as well as disincentive for sub-optimal usage. In the
context of this decision, the issues that need to be decided in
respect of 2G spectrum were discussed by Finance Secretary in
three rounds of meetings with Secretary (Telecom) in February,
2008. Accordingly, the following amendments are being suggested
in Pricing of Spectrum, its allotment among Access providers and
Spectrum Usage Charges:
1. Any allotments of spectrum to access subscriber licensees
under UASL regime beyond the initial start up allocation
of 4.4. MHz may henceforth be specifically priced and
charged for. Details in this regard can be worked out;
2. The price determined as above may be made applicable to
both the new and existing operators; such operators who do
not intend to pay the new charges may be given the option
of surrendering the spectrum allotted to them;
3. Spectrum Usage Charge, instead of being charged as a
fixed percentage of Adjusted Gross Revenue (AGR) for
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different spectrum bands, may henceforth be charged as a
percentage of AGR based on volume of business
categorization, so as to better reflect and capture the circle
specific scarcity value of spectrum. The revised charges
proposed for various Circles are as per the table annexed to
this OM and as agreed in the discussions between Finance
Secretary and Secretary, Department of Telecom;
4. The recommendations of TRAI for revising the subscriber
base criteria for allotment of spectrum may be considered for
implementation in the interest of enhancing efficiency of
spectrum usage and encouraging technological innovations.
4.1 The recommendations as above would be applicable to
allotments of spectrum in the 2G range as commonly
understood, irrespective of the type of technology deployed and
the quantum of spectrum held.
5.0 The principles which would be employed to govern allotment
of spectrum in the 3G range as commonly understood, may be
settled in consultation with DEA, in accordance with the October
31, 2003 decision of the Union Cabinet, referred to above.
6. This issues with approval of Minister of Finance.
Sd/-
(Govind Mohan)
Director
Department of Telecommunications,
(Sri S Behuria, Secretary)
Sanchar Bhawan, New Delhi
Recommendations of TRAI dated August 28, 2007; Paras 2.61,
2.62, pp 38-39 of the Report.
Comments of Department of Economic Affairs.
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ANNEX
Proposed Enhanced Scheme for Spectrum Usage Charge
Category Spectrum Usage Charge
% of AGR
Metro-I (Delhi, Mumbai) 8%Metro-II (Kolkata) 8%
Category-A 8%
Category-B 6%Category-C 4%
Comments of Department of Economic Affairs.
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FILE NO. 3/11/2003-INFRA
Ministry of Finance
Department of Expenditure
Infrastructure Division
New Delhi, April 8, 2008
OFFICE MEMORANDUM
Sub: Financial approval of Rs. 1,077.16 Crore for laying of
alternate communication network for Indian Air Force
for release of Spectrum.
Ministry of Communications and Information Technology
(MoC&IT), Department of Telecommunications (DoT) may refer to
UO NO. 11/1/12/12006-Policy-I, dated January 29, 2008 enclosing
therewith a Draft Note for CCEA on the subject mentioned above,
Comments of Ministry of Finance (MoF), Department of Economic
Affairs (DEA) on the proposal at Para 6.1 of the Draft Note are as
under: -
2.0 As pointed out by DEA in the meeting of the Full Telecom
Commission, held on September 4, 2006 the proposal to
commence work on co-ordination of spectrum vis--vis Armed
Forces has been taken up prematurely without evolving a
consensus on security issues particularly with the Army and tying
up budgetary provisions in advance. In absence of adequategroundwork, there have been cost and time overruns, and the
Project, initially slated to finish by December 2006 has got delayed
by nearly two years. Moreover, taking up implementation of the
Project without first securing necessary approvals from Competent
Authority amounts to a procedural lapse, which may not be
repeated in future.
-
8/3/2019 Attachments to PIL in SC (Feb. 24, 2012)
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3.0 However, in view of the compelling urgency of making
available adequate spectrum for further development of 2G/3G
services, the proposal of DoT is agreed to, subject to the following
observations:
1. DoT may take urgent steps to get the spectrum available
with Army and Navy vacated within a maximum period of
6 months, and actual implementation in this regard to
also commence within this period.
2. Pricing of the spectrum being vacated to be in such a
manner, as to not only ensure recovery of costs of the
Project, but also to ensure an adequate source of
receipts for General Revenue;
3. As regards allocation of funds, DoT may present their
case before the Planning Commission for the allocation
of the amount form within the overall authorized GBS.4.0 Union Cabinet, in its meeting on October 31, 2003 had, inter-
alia, decided that spectrum pricing would need to be decided
mutually between DoT and MoF so as to provide incentive for
efficient use of spectrum as well as disincentive for sub-optimal
usage. In the context of this decision, the following amendments
are being suggested in Pricing of Spectrum, its allotment among
Access providers and Spectrum Usage Charges:
1. Any Allotments of Spectrum to access subscriber
licensees under UASL regime may henceforth be
specifically priced and charged for. The charge may be
determined, Circle wise, by adopting the Entry Fee, fixed
for that circle in 2003-04, and thereafter inflating it by the
multiplier, which represents the growth in aggregate AGR
per MHz between 2003-04 and 2007-08; hence, for a
Pan India operator, the Circle fee fixed in 2003-04 (Rs.
375 Crore per MHz) would be inflated by a multiple of 3.5
(which represents the growth in AGR/MHz between
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2003-04 and 2007-08) to yield the new Spectrum price of
Rs. 1,312 Crore per MHz (approximately);
2. The price determined as above may be made applicable
to both the new and existing operators; moreover, the
entire range of spectrum allotted may be charged, for
both new and existing operators; such operators who do
not intend to pay the new charges may be given the
option of surrendering the Spectrum allotted to them;
3. Spectrum Usage Charge, instead of being charged as a
fixed percentage of Adjusted Gross Revenue (AGR) for
different Spectrum bands, may henceforth be charged as
a percentage of AGR based on volume of business
categorization, so as to better reflect and capture the
circle specific scarcity value of Spectrum. The Base
Charges proposed for various Circles, applicable as a flat
rate for Spectrum allotment upto 2x5 MHz are as per theTable in Annex to this OM;
4. In order to ensure that service providers make use of
various possible technological features for enhanced
spectrum efficiency before they ask for additional
Spectrum, for any additional Spectrum allotted beyond
2x5 MHz, the access subscriber licensees under UASL
regime may be charged @ 1% of AGR per MHz allotted
(pro rata), in addition to the Base Rate, uniformly for all
circles;
5. The allotment of Spectrum may continue to be linked to
the subscriber base; however, TRAI, in its
recommendations of August, 2007 on Review of License
terms and conditions and capping of number of access
providers have inter alia concluded that the present
Spectrum allocation criteria needs to be immediately
reviewed as it is not spectrally efficient and has not taken
into consideration the present technology innovations for
increasing spectral efficiency. TRAI have suggested
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creation of a Multi-Disciplinary Committee to frame a new
long term spectrum allocation Criteria; and, in the interim,
recommended a revision of the existing subscriber base
criteria which enhances the present subscriber norms;
the recommendations of TRAI may be implemented with
immediate effect, in the overall interest of optimum
utilization of a scarce national resource.
4.1 The recommendations as above would be applicable to
allotments of spectrum in the 2G range as commonly
understood, irrespective of the type of technology deployed and
the quantum of spectrum held.
5.0 The principles which would be employed to govern allotment
of spectrum in the 3G range as commonly understood, may be
settled bilaterally between DoT and MoF, in accordance with theOctober 31, 2003 decision of the Union Cabinet, referred to above.
6.0 This issues with approval of Minister of Finance.
Sd/-
(GOVIND MOHAN)
Director
Department of Telecommunications
(Sri S. Behuria, Secretary)
Sanchar Bhawan
NEW DELHI
Fax No. 23711514
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ANNEX
Proposed Base Rates for Spectrum Usage Charge
Category Spectrum usage Charge
% of AGR
Metro-I (Delhi, Mumbai) 8%Metro-II (Kolkata) 8%Category-A 8%
Category-B 6%Category-C 4%
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Notes at page 85-86/n deals with the Draft Note to CCEA
received from Department of Telecom seeking financial
approval for Rs. 1077.16 crore for laying an alternative
communication network for the India Air Force. After the
alternative network is laid the IAF is expected to release 45
MHz of spectrum.
02. The Note was examined earlier on another file and
FSs and FMs minutes thereon have been extracted as part
of the comments to the Note on this file.
03. At this stage, the basic issues relating to pricing of
spectrum maybe raised. The discussion and
recommendations thereon may be on the basis of specific
formulation(s) received form DoT.
04. Para 4.0 of DFA has been amended based on Finance
Secretarys note dated 11th February, 2008. Amended DFA
may please be considered for approval.
Sd/-
(Bindhushree Khullar)
Additional Secretary (EA)
03.04.2008
FS.
5. This was discussed with FM today. The note used for
discussion is placed below.
6. FM agreed that spectrum usage charges should be
increased reflecting the scarcity value of spectrum as
indicated in our note of 11 February, 2008.
7. On pricing of spectrum, FMs view is that we must insist,
in principle, on pricing spectrum (beyond 4.4 MHz)
-
8/3/2019 Attachments to PIL in SC (Feb. 24, 2012)
57/152
although details can be worked out after the auction of
3Gs spectrum.
8. Please modify the OM accordingly. Please let me see it
before issue.
Sd/-
(D. Subbarao)
Finance Secretary
7.4.2008
AS(EA)
JS(Infra)
Dir(Infra)
-
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FILE NO.3/11/2003-INFRA
Ministry of Finance
Department of Expenditure
Infrastructure Division
New Delhi, April 6, 2008
OFFICE MEMORANDUM
Subject: Financial approval of Rs.1,077.16 crore for layingof alternative communication network for Indian
Air Force for release of Spectrum.
Ministry of Communications and Information Technology
(MoC&IT), Department of Telecommunications (DoT) may refer to
UO No.11/1/12/12006-Policy-I, dated January 29, 2008 enclosing
therewith a Draft Note for CCEA on the subject mentioned above.
Comments of Ministry of Finance (MoF) Department of Economic
Affairs (DEA) on the proposal at Para 6.1 of the Draft Note as
under:
2.0 As pointed out by DEA in the meeting of the Full Telecom
Commission, held on September 4, 2006, the proposal to
commence work on co-ordination of spectrum vis--vis Armed
Forces has been taken up prematurely, without evolving a
consensus on security issues, particularly with the Army, and tying
up budgetary provisions in advance. In absence of adequate
groundwork, there have been cost and time overruns, and the
Project, initially slated to finish by December, 2006 has got
delayed by nearly two years. Moreover, taking up implementationof the Project without first securing necessary approvals from
Competent Authority amounts to a procedural lapse, which may
not be repeated in future.
3.0. However, in view of the compelling urgency of making
available adequate spectrum for further development of 2G/3G
-
8/3/2019 Attachments to PIL in SC (Feb. 24, 2012)
59/152
services, the proposal of DoT is agreed to, subject to the following
observations:
1. DoT may take urgent steps to get the spectrum available
with Army and Navy vacated within a maximum period of
6 months, and actual implementation in this regard to
also commence within this period;
2. Pricing of the spectrum being vacated to be in such a
manner, as to not only ensure recovery of costs of the
Project, but also to ensure an adequate source of
receipts for General Revenues;
3. As regards allocation for funds, DoT may present their
case before the Planning Commission for the allocation
of the amount from within the overall authorized GBS.
4. Union Cabinet, in its meeting on October 31, 2003, inter alia,
decided that spectrum pricing would need to be decided mutuallybetween DoT and MoF so as to provide incentive for efficient use
of spectrum as well as disincentive for sub-optimal usage. In the
context of this decision, the issues that need to be decided in
respect of 2G spectrum were discussed by Finance Secretary in
three rounds of meetings with Secretary (Telecom) in February,
2008. Accordingly, the following amendments are being suggested
in Pricing of Spectrum, its allotment among Access providers and
Spectrum Usage Charges:
1. Any allotments of spectrum to access subscriber licensees
under UASL regime beyond the initial start up allocation
of 4.4. MHz may henceforth be specifically priced and
charged for. Details in this regard can be worked out;
2. The price determined as above may be made applicable to
both the new and existing operators; such operators who do
not intend to pay the new charges may be given the option
of surrendering the spectrum allotted to them;
3. Spectrum Usage Charge, instead of being charged as a
fixed percentage of Adjusted Gross Revenue (AGR) for
-
8/3/2019 Attachments to PIL in SC (Feb. 24, 2012)
60/152
different spectrum bands, may henceforth be charged as a
percentage of AGR based on volume of business
categorization, so as to better reflect and capture the circle
specific scarcity value of spectrum. The revised charges
proposed for various Circles are as per the table annexed to
this OM and as agreed in the discussions between Finance
Secretary and Secretary, Department of Telecom;
4. The recommendations of TRAI for revising the subscriber
base criteria for allotment of spectrum may be considered for
implementation in the interest of enhancing efficiency of
spectrum usage and encouraging technological innovations.
4.1 The recommendations as above would be applicable to
allotments of spectrum in the 2G range as commonly
understood, irrespective of the type of technology deployed and