Cabinet approves $5.7 billion mobile airwave surcharge

NEW DELHI Thu Nov 8, 2012 10:32pm IST

1 of 2. An electrician speaks on his mobile phone in Mumbai October 11, 2006.

Credit: Reuters/Sima Dubey/Files

Related Topics



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 (BRTI.NS) and Vodafone's (VOD.L) 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 BSNL.UL and Mahanagar Telephone Nigam Ltd (MTNL.NS) 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 (RLCM.NS) and Idea Cellular (IDEA.NS) 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 TATASL.UL 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)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Trade Deal


Record High

Record High

Nifty hits record high on foreign buying, higher Asian stocks.  Full Article 

Bullish on Equities

Bullish on Equities

Bullish on Indian equities, but gains seen 'less sharp'- Goldman Sachs  Full Article 



World Bank chief welcomes new BRICS development bank.  Full Article 

Streamlining Operations

Jet Streamlines

Jet Airways chairman says looking to restructure debts, talking to bankers  Full Article 

Political Economy

Political Economy

Analysis - Watch what markets don't do as world politics turns nasty   Full Article 


Honda's India Thrust

Honda's India unit to account for 25 pct of Asia Pacific sales by March 2017 - exec   Full Article 

 Boosting Output

Boosting Output

NMDC plans to boost iron ore output by two-thirds  Full Article 

Apple Results

Apple Results

Apple margin concerns fade, focus shifts to iPhone launch  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage