India cabinet approves one-time spectrum fee for telcos

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Final fee will be based on prices at spectrum auction due to take place later this year.

India’s federal Cabinet Thursday approved a proposal to levy a one-time fee on telecommunication companies holding excess airwaves, a decision that is likely help the government cut its fiscal deficit but hurt the country’s top telecom service providers.

The fee is expected to generate at least 305 billion rupees ($5.6 billion) in revenue for a government which is desperately trying to raise funds to cut its wide budget deficit.

Telecom companies have been against the move, arguing that the new fee will hurt them at a time when profits are under pressure due to stiff competition and the high interest costs on the debt they took in 2010 to pay for third-generation bandwidth.

Under the proposal that the Cabinet has cleared, all companies that hold bandwidth beyond 4.4 Megahertz will have to pay the fee.

Top operators such as Bharti Airtel Ltd., Idea Cellular Ltd., the Indian unit of Vodafone Group PLC and Mahanagar Telephone Nigam Ltd. hold more bandwidth than the limit set by the government. All these companies use the global system for mobile communications, or GSM, technology.

These operators were initially given 4.4 MHz to start services when India opened its telecom sector for private participation in 1994. In 2001, the government allotted extra spectrum to help the companies ease traffic congestion on their networks.

The fee will be levied from Jan. 1, 2013, for the remaining license period of the companies, Telecom Minister Kapil Sibal said. Those who don’t want to pay can return their excess spectrum, he added.

Mr. Sibal said the actual fee to be paid will depend on the price the government gets from a bandwidth auction, which starts Monday.

The telecom department had set the base price for the auction at 140 billion rupees for a 5.0 MHz GSM slot.