LIRNEasia research on Telecom Regulatory Environment (where India gets the lowest scores on the USO dimension) shows that Indian USO policy and implementation are flawed. LIRNEasia research on teleuse at the Bottom of the Pyramid shows clearly that lowering connection charges and keeping the use charges low are critically important in connecting the next billion. The policy recommendation that flows from this, made at meeting of regulators in New Delhi on the 15th of July, is that the USO levy should be phased out and the existing funds be disbursed as quickly as possible. But it appears that the Department of Telecommunications and the new Minister think otherwise:
The Hindu Business Line : Raja rejects telecom industry plea to cut USO levy
Operators had said that since the USO fund has over Rs 10,000 crore lying unused, the Government should consider lowering the contribution made by the telecom firms. “We realise that USO is an important tool to enable telecom services in rural areas. We have been contributing 5 per cent of our revenues annually towards it for the past so many years. However, now that the fund has surplus amount, which is enough to finance the new mobile and broadband projects, the levy should be reduced,” said a CDMA operator.The operators proposed that if the levy was reduced, they would reciprocate by dropping tariffs even further. Telecom industry generates revenues of Rs 80,000 crore and a 2.5 per cent reduction in the levy would have meant savings of around Rs 2,000 crore for the operators.
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harsha de silva
2005 lirneasia paper ‘diversifying network participation: study of india’s universal service instruments’ by payal malik and myself deals with the USO policy and implementation [along with the ADC] in fair detail. it shows how the problem of technology-centricity [at the time] and incumbent bias via auction-participation restrictions in the design was resulting in serious implementation issues with most of the collection left undisbursed.
our subsequent TRE and ‘teleuse at the BOP’ studies by rohan samarajiva and inter alia myself and ayesha zainudeen respectively  add to the understanding of the disbursement of USO funds on the one hand and the affordability of telecom services on the other.
i think it is fairly clear that in the context of rapidly developing technology, a more conducive regulatory regime that creates incentives for competition in rural areas will push the market efficiency frontier further out reducing the access gap even further.
why the USO tax need to maintained at such high levels [highest in the world?] in an environment where operators are submitting negative bids at auctions to provide services in rural areas and usd 2 billion remains undisbursed, seem to point towards politics; not telephones for the rural poor.