Currently, the SUC charge paid by operators ranges from 3.2 per cent for Sistema to 5.3 per cent each for Bharti, Vodafone and Idea. Bharti Airtel’s SUC under the new system might fall by 100-150 bps to four per cent.
While RJio does not have operations currently and pays no SUC, most of its spectrum is in the 2300 MHz band (BWA) where the rate is only one per cent. Its other holdings include spectrum in 800 MHz and 1800 MHz that would attract five per cent SUC. Analysts say RJio’s SUC would have gone up had the uniform rate proposed by Telecom Regulatory Authority of India (Trai) been accepted.
In the current scheme of things, auctioned spectrum has five per cent SUC, administered spectrum has an escalating user charge, while BWA spectrum attracts one per cent charge. Bharti Airtel’s spectrum usage charge falls in all the three of these buckets. It pays SUC on the administered spectrum on an escalating charge basis, depending on the amount of spectrum held, the SUC on BWA spectrum, which is one per cent for which the revenue is reported on a segregated basis, and the auctioned spectrum where the charge is five per cent. The BWA spectrum will be added to the current weighted average formula to arrive at the final SUC.
Analysts say the reduction in SUC will boost operating profit and earnings of the telecom companies
with India Nivesh estimating an earnings per share gain of 10 per cent over the medium- to long-term due to the reduction for Bharti Airtel.
However, the sector is disappointed mainly with the Department of Telecom (DoT)’s decision to calculate the total SUC for operators based on weighted average of all the spectrum bands versus expectations for a flat SUC of three per cent.
“DoT has been instrumental in bringing down the SUC from five per cent to three per cent for the next auction, which is a big positive for the industry,” said to Rajan Mathews, director-general, Cellular Operators Association of India (COAI).
“However, by bringing in the new formula to calculate total SUC based on weighted average rather than making SUC a flat three per cent of revenues, the telecom sector has come back to square one,” adds Mathews.
The total SUC will be based on the weighted average of all the spectrum bands an operator previously purchased (including BWA that operators brought in 2010) and what will be bought in the next auction while considering the time frame of acquisition of these spectrum bands. The immediate outgo for existing operators will not decline.
“The methodology of computation of the SUC is very complex,” said Mathews. This doesn’t change the overall equation for the telecom operators. It may bring down the cost for one or two operators, but if the SUC calculated as per the new formula is lesser that what we paid earlier, we will still have to pay at least that much. So, it does not bring us any immediate benefit.”
While this move is revenue-neutral for the exchequer, analysts at Quant Capital say telcos will benefit if they respond by increasing the penetration and scope of their services. Thus, telcos will gain if revenues go up and there are no price wars or cuts in data tariff.
COAI had been in discussions with the telecom ministry and Trai, and had earlier suggested flat three per cent of revenues as SUC.
“We needed the weighted average formula for calculating SUC when different frequency bands were used for different purposes because of the technology limitation and thus contributed to revenues differently,” Mathews explained. “Now that the government has liberalised all the spectrum bands - any band can be used for LTE, 4G, 3G and so on - there is no need for the weighted average since all of them can be considered equal.” Now that telcos’ hopes have been dashed, this might impact the profitability of operators and cost of doing business in the long run, Mathews said.
This, in turn, will lead to increased tariffs and impact the government’s plan of improving internet access at affordable price.
Most analysts, however, believe the proposal is a good move and should help transition to a uniform SUC rate going ahead.
“It is clear that the telecom ministry intends to move towards the SUC of one per cent of the revenue. Telcos have been talking about it for a while and they do not disagree with DoT and Trai's intent,” said Sanchit Vir Gogia, chief analyst and CEO of Greyhound Research. “What they disagree with is the pace at which it is moving towards that direction. Also, at present, different telcos have different stands on the issue. Hence the need to come together as one so as to make their voice heard.”