Government allows liberal payment terms for spectrum auctions

New Delhi: The government has approved liberal payment terms for spectrum auctions through an amendment to the Finance Bill passed on Thursday.

According to details made available on Friday, the department of telecommunications has offered two options to telecom companies for acquiring the right to use spectrum—upfront payment and payment in instalments.

The government also proposed that the scope of the amortization regime for the acquisition of spectrum be extended to include not only actual payments but also the liability incurred in terms of the provision made for payment of spectrum fees as per the instalment scheme.

“Further, the deduction shall be available in equal instalments over the period beginning from the year of actual payment to the year up to which the right to use spectrum remains in force,” the finance ministry notification said.

However, any deduction shall be reversed and added to the income of the company in the concerned previous year if it fails to comply with the conditions of the scheme.

The idea was originally mooted by the Telecom Regulatory Authority of India (Trai) but it was feared that the government may reject the proposal amid pressure to bridge its fiscal deficit.

“It was proposed that the government should take 10% of the cost in the beginning and then take 5% every year thereafter for the next 20 years, with interest,” said a person close to the development.

“The idea is that if the spectrum is spread over 20 years then why should we take all the money now. Money should be taken at the stage of resource consumption not before that. This will help to do away with the perception that the forthcoming spectrum auction is very expensive,” this person said.

The value of the spectrum to be sold in the proposed July-August auction is expected be around Rs.6 trillion, more than India’s fiscal deficit of around Rs.5.6 trillion for the current financial year.

Trai has recommended the auctioning of all the available spectrum, including the airwaves in the 700-megahertz (MHz) band, considered more efficient for high-speed data services, for the first time.

It has also suggested that the government auction spectrum in the 800MHz, 900MHz, 1800MHz, 2100MHz, 2300MHz and 2,500MHz bands in the auction, which will be the biggest ever sale of radio waves in India.

The move comes as a big relief for telecom companies who claim they are struggling to arrange funds for the coming spectrum auction due to the huge debt on their books.

The telcos were requesting the government to relax the payment terms for acquiring spectrum rights by providing easy financing terms.

Hemant Joshi, a partner at consulting firm Deloitte Haskins and Sells LLP, welcomed the move and said that it should work well for the industry in the longer run even if it increases cash flows in the earlier years.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.