Relief for telcos as DoT scraps 3% floor rate on 5G spectrum usage charge

In a big relief for telecom companies, the Department of Telecommunications (DoT) has scrapped the 3 per cent floor rate on spectrum usage charge (SUC).

As the government prepares for 5G spectrum allotment next month, the telcos had been demanding to scrap the SUC floor rate, equivalent to 3 per cent of adjusted gross revenue (AGR), to cut their 5G spectrum payouts.

The DoT, in its latest SUC computation order that came out late on Tuesday, did not mention the 3 per cent floor rate, which means it has been scrapped, industry watchers said.

The Cellular Operators Association of India (COAI) welcomed the much-awaited DoT order regarding the levy of SUC charges for spectrum in 600, 700, 800, 900, 1800, 2100, 2300, 2500, 3300 MHz and 26GHz bands.

"The order will provide clarity to telecom service providers for the upcoming auctions," said Lt Gen Dr SP Kochhar, DG, COAI.

The government is set to launch 5G spectrum bids at the end of next month.

The Union Cabinet has approved the telecom department's proposal to conduct an auction through which spectrum will be assigned to the successful bidders for providing 5G services to public and enterprises.

Payments for spectrum can be made in 20 equal annual installments in advance at the beginning of each year. It is expected to significantly ease cash flow requirements and lower the cost of doing business in the telecom sector.

Spectrum auction will begin on July 26. The Department of Telecom has released a notice inviting applications (NIA) for the auction of spectrum in 600, 700, 800, 900, 1800, 2100, 2300, 2500, 3300 MHz and 26GHz bands.

The last date for submission of application is July 8 and it will give an indication of potential participants for the auction and earnest money deposit on July 20 which will indicate maximum spectrum payout for each telco.

Further, spectrum purchased in the upcoming auction will have two payment options.

First one is full or part upfront payment of total bid amount within 10 days of auction completion.

Part payment should be made at least for two years' instalment or multiple complete years.

Thereafter, the buyer will have the option to avail moratorium for the corresponding number of years of payment. Second is payment in 20 yearly equal instalments with first instalment due in 10 days of completion of auction.

The rate of interest of calculating installment is fixed at 7.2 per cent. Pre-payment of spectrum dues is allowed without any penalty.

The telcos are allowed to surrender spectrum that will be auctioned after a minimum period of 10 years from the date of acquisition.