SUC payments: Telcos may save Rs 5,400 crore in annual SUC payments

Bharti , Jio and (Vi) may annually save around Rs 2,100 crore, Rs 2,300 crore and Rs 1,000 crore respectively in spectrum usage charges (SUC) after the government removed the 3% floor rate on the statutory fee, analysts said.

The estimated savings, though, are subject to the operators buying large chunks of 5G airwaves in next month’s auction.

estimates that the applicable SUC rates for Airtel, Vi and Jio would plunge to “0.4%, 0.4% and 0.3% of adjusted gross revenue (AGR) respectively if they buy as much as 500 units of 26 GHz and 100 units of 3.3-3.67 GHz spectrum in the July sale”.

At present, Airtel, Jio and Vi’s SUC payouts are 3.2%, 3.1% and 2.9% of AGR respectively. If national long distance (NLD) revenues are included in telco AGRs, the current SUC level rises to a 3.6-to-4.1% of AGR range.

But since spectrum acquired in future auctions won’t attract any SUC, if telcos buy high quantities of 5G airwaves in the July sale, their overall payouts of these statutory fees will dip sharply to well below 1% of AGR with the removal of the 3% floor rate.

ICICI Securities expects Airtel, Jio and Vi’s effective annual payouts for 5G spectrum would drop to around a modest Rs 1,200 crore, Rs 1,100 crore and Rs 2,400 crore after factoring in the annual savings on the SUC front, post removal of the 3% floor.

The government is planning to sell 72GHz of 5G airwaves ranging from 600 MHz to 26 GHz worth Rs4.3 lakh crore at base price from July 26. Market leader Reliance Jio and

expected to be the main bidders, with cash-strapped Vodafone Idea to a lesser extent. The government has priced the 3.3-3.6 GHz airwaves at Rs 317 crore a unit and Rs 7 crore a unit for 26 GHz airwaves.
too expects increased demand, especially for low-cost 26 GHz spectrum as it can help operators sharply reduce their SUC outflows without any meaningful investment.

“We expect all three operators to benefit from DoT’s order on SUC computation and see them acquiring a combination of 3.3 GHz and 26 GHz spectrum at reserve price to deploy 5G services, given the additional benefits of lowering SUC and boosting Ebitda (read: operating income),” BNP Paribas said in a note.

The European brokerage estimates that if Airtel’s SUC drops to even 1% of AGR from current levels it could potentially boost the telco’s FY24 India mobile Ebitda by 4.1%. The potential mobile Ebitda growth estimates for Jio and Vi were not immediately available.

Analysts, nevertheless, expect overall bidding to stay muted as reserve prices are higher than what telcos had wanted and also since spectrum supplies are adequate along with the prospect of annual auctions. They also ruled out excess bidding as there are only two serious bidders – Jio and Airtel – since Vi’s financial struggles continue as it’s yet to conclude its long-pending Rs 10,000 crore external fundraise.