USO Fund: Higher levy, lower allocation

Telcos question low level of utilisation, demand reduction in levy

The Centre has collected Rs 52,722.64 crore under the Universal Service Obligation Fund, or USO Fund, since its inception in 2002-03. However, over the past 10 years, it has allocated only Rs 15,784.4 crore or 30% of what it has collected so far, according to data by the Department of Telecommunications (DoT).

The USO Fund was formed through a Universal Access Levy of five% of the revenue earned by the operators under various licences. The fund aims to boost connectivity in the rural areas.

According to DoT data, the Centre is sitting on Rs 28,221.07 crore at the end of September 30, 2013. It had paid Rs 6,948.64 crore to Bharat Sanchar Nigam Limited (BSNL) over the period 2002-03 to 2005-06 for fulfilling rural obligation.

BSNL gets the fee and spectrum charges from USO Fund on the ground that BSNL would improve connectivity in extreme rural areas, something the private mobile operators would not be able to do.
Government officials responsible for the USO Fund have declined to comment.

“The original objective has not been fulfilled. All the operators agreed to the 5% levy considering the very low penetration of connectivity especially in the rural areas, as it was not commercially viable for private carriers. However, most of the mobile operators have already reached far rural areas, which BSNL actually did not do. And, most of the fund is lying with the government,” said Rajan Mathews, director-general, Cellular Operators Association of India (COAI), which lobbies for GSM telecom service providers.

Notably, the five% levy (of operating revenue) in India is quite high, compared with other countries. In Colombia and Pakistan, it is just two%, while it is just one% in Brazil and 0.8% in Canada, according to GSMA that represents mobile operators worldwide.

“Level of utilisation is also high in other countries at as much as more than 80%,” said Mathews. According to GSMA, USO Fund utilisation stood at 84% in Colombia in 2011.

GSMA said in a report that the USO Fund levy of five% places heavy burden on Indian telcos, and the government needs to re-design the structure setting several priorities.

“It needs to align the funding demands made on operators with its funding needs and with the financial state of the operators, seeking alternative funding sources where appropriate. It also needs to develop clear, transparent policies that are aligned with defined short- and mid-term milestones. USO policies should also focus on needs not met by markets,” GSMA said in a recent report.

According to Mathews, the USO levy should be brought down to one%, and the Centre should first utilise the fund. The COAI has made several representations to the government in the past few years, he added.

According to the Telecom Regulatory Authority of India (Trai), the Centre has achieved the targeted rural tele-density of 39.22%. Private operators point out this is not solely because of the USO Fund and that private operators and market forces have played a key role in this.

However, broadband penetration has fallen short of target.

Mathews said the Centre should use the USO Fund to ensure connectivity in areas affected by Left-wing extremists. It should also be used in building the national fibre optic network judiciously, he added.

The biggest project being funded by the USO Fund is the National Fibre Optic Network project, which was proposed in 2011 with a plan to connect 250,000 gram panchayats through optic fibre in order to provide high-speed data connectivity, through 100 megabite per second (mbps), by March 2016. The Centre has plans to provide Rs 20,000 crore from the USO Fund to support the project.

According to industry sources and operators, the project will cost almost double of what the government had estimated.
Bharat Broadband Network Limited (BBNL), which has been given the job to implement the project, has reportedly said that the services under this project would not be possible within the next five years.