attachments to pil in sc (feb. 24, 2012)

8/3/2019 Attachments to PIL in SC (Feb. 24, 2012)

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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


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


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


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


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


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


____________________________________________________

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


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.


50/152

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.


51/152

FILE NO. 3/11/2003-INFRA

Ministry of Finance




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.



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: -


Commission, held on September 4, 2006 the proposal to


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.


52/152

3.0 However, in view of the compelling urgency of making



observations:




also commence within this period.




receipts for General Revenue;

3. As regards allocation of funds, DoT may present their


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


53/152

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;



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


54/152

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.




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


(Sri S. Behuria, Secretary)

Sanchar Bhawan

NEW DELHI

Fax No. 23711514


55/152

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%


56/152

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)


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)


58/152

FILE NO.3/11/2003-INFRA

Ministry of Finance




OFFICE MEMORANDUM

Subject: Financial approval of Rs.1,077.16 crore for layingof alternative communication network for Indian

Air Force for release of Spectrum.



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:


Commission, held on September 4, 2006, the proposal to


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



59/152


observations:




also commence within this period;




receipts for General Revenues;

3. As regards allocation for funds, DoT may present their


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;




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.




attachments to pil in sc (feb. 24, 2012)

Documents