JOJI THOMAS PHILIP NEW DELHI
[ MONDAY, AUGUST 21, 2006 10:27:47 AM]

DEPARTMENT of telecom has demanded that the finance ministry allocate an additional Rs 2,000 crore towards the Universal Service Obligation Fund (USOF), over and above the Rs 1,500 crore that has been allocated in the Union Budget.

It has also said that all telecom companies should pay 5% of their adjusted gross revenue towards the USOF, which is used for building and supporting telecom infrastructure in rural India.

DoT move is likely to cause a showdown with the finance ministry . This is because, DoT has backed its demand by stating that the unutilised amount from this fund stood at Rs 7, 206.12 crore in March 2006, and would swell to Rs 9,194.12 crore by the end of this fiscal.

Besides, the TRAI, in a study, has also estimated that the unutilised USOF would increase to Rs 25, 044.2 crore by 2010.

“The expenditure under USOF till June 2006 is Rs 121.34 crore against the budget provision of Rs 1,500 crore. A sum of Rs 700 crore is expected to be utilised by the end of September 2006. The expected requirement for the current year is Rs 3,358 crores,” DoT said. Providing further details, the department added that ongoing projects (inclusive of liability) would require Rs 1,758 crore while infrastructure projects would cost an additional Rs 1,600 crore in this fiscal.

Under current norms, the USOF can only be used to support fixed line services. Industry watchers share the view that DoT’s demand that this fund be enhanced to Rs 3,500 crore for this fiscal comes in the wake of the department finalising the proposal to extend the support to mobile services of private operators in rural areas through a bidding process.

“We are looking at amending the Telegraph Act to accommodate the cellular services and CDMA-based services to reach the rural areas. We are looking at sharing of the passive infrastructure with the cellular service providers,” communications and information technology (C&IT) minister Dayanidhi Maran told reporters.

Besides covering the villages, the minister is of the opinion that the wireless services should also provide connectivity to the Railways and highways especially in rural areas. When asked about the time frame for amending the Act, Mr Maran said, “We have just started the process.”

Cellular Operators’ Association of India (COAI) welcomed the Wednesday’s announcement. COAI director general TV Ramachandaran said, “This will make the expansion into the rural and semi-urban areas by cellular operators economically viable. We need more cash surplus to fund capital expenditure in rural areas.”

So far, the state-owned Bharat Sanchar Nigam Limited (BSNL) has received the lion’s share of the USO fund as it has covered around 80% of the villages in the country by offering fixed line services. The private operators share in offering rural connectivity has been low in the past.

But if the Telegraph Act is amended then the private sector could play a major role in offering wireless services in rural areas. This is largely because the private players have a stronger presence in wireless services than in fixed services. Also while the urban areas getting saturated in terms of telecom coverage, the rural areas present a largely untapped market. Around Rs 1,814 crore have been made available to the operators for rural telephony of which Rs 1,314.50 crore have been provided during 2004-05. For the year 2005-06, a provision of Rs 1,200 crore has been made available for the USO support.

The minister on Wednesday announced that India has crossed 100 million phones. “The US, Japan and Germany have almost 100% tele-density, while China has a tele-density of 55%. India, with a tele-density of about 9%, is bound to surpass the growth in these countries by a wide margin over the next 4-5 years,” he said.
The minister said the country was likely to have 250 million phones by 2007 with a tele-density of 22%.
“Of the additional 150 million that would be added by 2007, almost 80 million will be done by BSNl and MTNL alone,” he said. On the present access deficit charges (ADC) regime, Mr Maran said the ADC regime will continue for at least another two years. “There is no rush to abolish the ADC. ADC will be reduced with the passing of time and the benefit would be passed on the users,” the minister said.

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In his budget speech the Finance Minister of India promised a release of Rs. 1,200 crores (USD 275 million) for the Universal Service Fund. While it is heartening that the funds are being released and are not being gobbled by the Contingency Fund of India, what is however disheartening is that competition and liberalisation has not achieved its full potential in bridging the rural urban divde and like in the monopoly era one has to wait for budgetary pronouncements for rural telephony to jumpstart. An extract from his speech:

Telecommunication is the best way to provide connectivity in urban and rural India. By the end of January 2005, we had achieved a tele-density of 8.75 per cent. However, we are concerned with the low tele-density in rural areas. So far, Government has released Rs.1,700 crore to the Universal Service Obligation (USO) Fund, which has been fully utilized. A provision of Rs.1,200 crore has been made for 2005-06. 1,687 subdivisions will get support under the USO Fund for rural household telephones. 5.20 lakh village public telephones (VPTs) have been installed so far, and BSNL has undertaken to provide VPTs in the next three years to the remaining 66,822 revenue villages