Cabinet approves $5.7 billion mobile airwave surcharge

Last Updated: Thu, Nov 08, 2012 17:10 hrs

By Devidutta Tripathy and Nigam Prusty

NEW DELHI (Reuters) - The cabinet approved a plan to levy a $5.7 billion surcharge on airwaves held by long-established telecommunications operators that will hit market leaders Bharti Airtel and Vodafone's local unit and two state-run carriers the most.

The cabinet also approved a proposal that companies buying a carrier that paid a low state-set price for airwaves must match a price to be determined at an upcoming auction and pay the difference to the government, which would make acquisitions more expensive in the world's second-biggest mobile phone market.

India, which traditionally bundled airwaves with telecom permits and charged about $300 million for all India permits, is for the first time auctioning off second-generation airwaves after a scandal over a state grant process in 2008 has set an auction starting price seven times higher.

The telecommunications minister, Kapil Sibal, has said the surcharges are aimed at creating a level playing field between old and new operators.

"The positive part is one uncertainty is over. Telcos can now litigate and demand to reduce the fee. But at least the worst case on spectrum fees is now known," said a telecommunications analysts with a foreign brokerage who did not want to be named as he is not authorised to speak to media.

On Thursday, Sibal said the cabinet had approved a ministerial panel's proposal that GSM-based carriers pay for airwave holdings beyond 4.4 megahertz at a price to be determined by the auction, while CDMA carriers pay for holdings beyond 2.5 megahertz, from January onwards.

In addition, GSM-based carriers that have more than 6.2 MHz of airwaves will also pay a retroactive fee for the extra airwaves for the period between July 2008 and December this year.

While the auction for GSM airwaves starts next week, India will have to defer auctioning off CDMA airwaves as two bidders who had initially applied to bid later withdrew.

"On the CDMA issue, we will come back to the cabinet because there is no auction discovered price now, but that does not mean they can get away without paying a price," Sibal said, adding his ministry would come back to the cabinet with a proposal on what basis the fees would be collected.

The surcharges will net the government least 309 billion Indian rupees, the telecommunications ministry estimated in a cabinet note seen by Reuters. The money will be a timely windfall for a government looking to rein in a high fiscal deficit.

Of the 309 billion rupees, private sector operators will pay an estimated 191 billion rupees, while the burden on ailing state-run carriers Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd will total 118 billion rupees, the government estimates.

Analysts have estimated top carrier Bharti Airtel would have to pay about $1 billion in surcharges and Vodafone India's share to be about $550 million.

Bharti, Vodafone and Idea officials declined to comment.

Shares in Bharti Airtel were up 1.8 percent on Thursday, while Reliance Communications and Idea Cellular shares were also trading higher after the news. While the surcharges will be a further burden on their financials, the relief is they can pay it in installments over several years.

The stocks have underperformed the broader market this year and had corrected after a ministerial panel last month recommended the surcharges.

The cabinet also approved a proposal to grant sixth-ranked carrier Tata Teleservices 4.4 Mhz of airwaves in the lucrative Delhi zone after the completion of the auction. The company has been waiting for the spectrum since 2008 after paying the state-set price for all India permit.

(Additional reporting by Aradhana Aravindan in MUMBAI; Editing by Matt Driskill)

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