INDIA BUSINESS WORLD - FEBRUARY 1^st - FEBRUARY 15^th - 2008

TELECOM M&AS TO PAY SPECTRUM TRANSFER FEE

The department of telecom (DoT) has decided to impose spectrum transfer fee on the sale of telecom licences. While the move is primarily aimed at discouraging new entrants from selling out after securing scarce spectrum, it will also apply to existing service providers who sell out to domestic or foreign players. The fee will be determined by the Telecom Regulatory Authority of India and based on the market value of the spectrum.

The fee will increase the cost of M&As in the telecom sector and yield substantial revenues to the government. Just two days ago, Vodafone global CEO Arun Sarin had told the 3G conference in Barcelona that the company was open to buying spectrum from the market (read buy out new entrants) if the government did not allot radio frequencies to Vodafone Essar.

DoT will soon ask Trai to frame guidelines. The regulator will decide if spectrum transfer fee should be paid by the buyer, the seller or both. Trai will also fix a valuation for the spectrum. “The quantum of fees the government would receive on account of transfer of spectrum during M&As needs to be referred to Trai,” DoT said in an internal note.

All new entrants, who have paid Rs 1,651 crore licence fee, will get 4.4 MHz of pan-India GSM spectrum. Since the spectrum is worth several thousand crores, DoT feels some new entrants are likely to make a quick buck by selling their licences at a premium to existing telcos, which are facing a major spectrum crunch. Some big operators had earlier said that they were in advanced discussions for acquisitions or mergers with several new entrants who were awarded letters of intent (LoIs) recently.