LIRNEasia » Universal Service Obligation Fund

India: Finance Ministry nixes reduction of universal service fee

Rohan Samarajiva — Thu, 26 Mar 2009 13:03:02 +0000

As those who have followed the discussion on universal service fees on this blog know, universal service fees are usually charged from a company (actually the company collects the money from customers and gives it to the government). The payments go to dedicated fund, from which it is disbursed (or not, for the most part) to connect more people to the network.

India has one of the highest universal service fees in the world–5% of total revenues. We were hopeful, after years of presenting evidence to the government, that this would be reduced (though our preference is for its complete phasing out). The reduction of the rate from 5% to 3% was almost done, but suddenly it has been halted due to Finance Ministry objections.

If it had gone through it would amounted to an INR 2000 crore (roughlly USD 400 million) injection of funds into the industry. And the irony is that the money does go into the consolidated fund of the government to be used for everyday purposes. It will just sit in a dedicated account: poor people’s money, doing nothing for poor people, on a whim. And how much is sitting there now: over USD 4 billion, growing by the day!)

Interestingly, the licence fee cut would not have impacted the exchequer as DoT had planned to reduce telcos’ contribution to the Universal Service Obligation Fund (USOF) for rural telephony, which is paid out of their licence fee, and which is flushed with funds.

India inches toward reducing universal service fee

Rohan Samarajiva — Mon, 23 Mar 2009 05:57:16 +0000

Since 2005, LIRNEasia has been critical of the very high amount (5%) charged from Indian telecom consumers through the operators and then left unspent in government accounts (approx. USD 4 billion at last count). Our criticisms were presented in multiple forms including a book chapter. We made them known to the leadership of the Department of Telecommunications in face-to-face conversations.

Most recently, I discussed the harm caused by taxing poor people to purportedly serve poor people and then keeping the money unspent at a UNCTAD meeting on trade and regulation. In a recent newspaper article, Payal Malik was quoted as recommending the closure of the universal service fund, which is another way of saying the levy should be brought down to 0.

It appears that our work is having an impact. The first step, a cut in the rate, is in the works. It has been held back by a pernicious rider that would unduly benefit BSNL, but we are optimistic that the reduction will be effected.

In October last year, the Department of Telecom (DoT) had announced a cut in the fee contributed towards Universal Service Obligation Fund, a subsidy given to telcos to offer services in rural areas, to three per cent from five per cent now and had been kept in abeyance till further order.

Full article is here.

USO for broadband in India

Rohan Samarajiva — Mon, 17 Sep 2007 18:33:36 +0000

Sign of the times? No longer are universal service subsidies offered for bare bones basic service; broadband is being considered for subsidy. With massive amounts piling up in the USF, they need to be innovative to get it out. Of course, there is another option: reduce or eliminate the US levies.

TRAI issues draft recommendations for broadband growth

Dismayed by the poor penetration of broadband services, telecom regulator TRAI today brought out a new draft that recommends subsidising the service in remote and hilly areas.
Such subsidies could be accessed by broadband service providers after they are made eligible for support from the Universal Service Obligation Fund, to which telecom companies contribute a portion of their profits.

In the draft suggestions, it said said USO funds be provided as subsidy for providing broadband services through satellite in remote and hilly areas where back haul charges were initially up to 40 per cent.

Least cost subsidy auction indicates Indian rural areas commercially viable

Divakar Goswami — Wed, 28 Mar 2007 06:18:23 +0000

The Indian government held least cost subsidy auction (lowest bid for subsidy is the winner) in two parts to disburse the world’s second largest Universal Service Obligation Fund (USOF) for rolling out mobile services in rural areas across the country. For the purposes of the auction, India has been divided into 81 clusters. Part A of the auction disbursed funds for passive infrastructure like towers and Part B dealt with the actual deployment of mobile services.

The bidding has been intense for deployment of mobile services (Part B) and most of the bids were for zero subsidy fund and in some cases negative bids were made! This strongly indicates that mobile operators in India perceive deploying mobile services in India’s rural areas to be commercially viable. Of the 81 clusters, results have been declared for 24 clusters that have been won by BSNL, Dishnet Wireless and Reliance. The remaining 57 clusters have to be re-bid because of tie between the third and fourth operators! The absence of Bharti from the list is a bit surprising.

The results of Part A of the auction for deploying passive infrastructures like towers and base stations were more uneven. BSNL has won 80% of the $570 million USO fund to deploy passive infrastructure like mobile towers in rural areas across the country. BSNL won 63 of those clusters and will be deploying around 6000 mobile tower, the remaining clusters were won by other operators.

The USO least cost subsidy auction for fixed lines that was held in the past also resulted in BSNL bagging the majority of the clusters. However, unlike the previous auction the current auction resulted in bids being about 30% lower than the benchmark bidding rate due to “severe competition and bidder interest.” That is indeed a positive development.

DoT demands Rs 2,000 cr more for universal fund

Payal Malik — Sun, 24 Sep 2006 06:05:35 +0000

Joji Thomas of the Hindu Buisness Line reported this on August 21, 2006. LIRNEasia research by Payal Malik had recommended USO funds should be technology neutral as well as fund infrastructure creation, but the funds from the USF are not being released as mentioned in this report. Read on…

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.