Spectrum or licence charges can be assessed as a percentage of (royalty on) revenues or profits, which has to be handed to the spectrum regulator under the terms of the licence received or profits earned by an operator. This can be a way to cover regulatory costs, or it can be designed to raise revenue for the government.
The charges thus go up and down with the prosperity of the firm (eg Vodafone) and sector (eg. mobile communications). This makes the regulator a kind of ‘partner’ of the operator, sharing a common interest in maximising revenue or profit; this may give the regulator distorted incentives, for example a mobile to keep competition out, to keep royalty payment up. Because royalty payments depend upon operator’s performance the income they generate is unpredictable, which may be a disadvantage. There also needs to be legislative clarity to ensure that what might be viewed as taxation is indeed legal.
Finally, the basis for calculating payments must be spelt out, to prevent an operator from using accounting devices hide income or profit and thus reduce payment.