Govt not keen on doing away with LF and USO levies

“It’s under consideration, but unlikely that it will be accepted," one of the officials said on the condition of anonymity. “There’s the issue of exchequer revenue getting affected."

Telcos had asked the government to prospectively remove the licence fee, including the universal service obligation (USO) fee, as a share of AGR, or reduce it from 8% to 0.5-1% of AGR. The measure was suggested after the Supreme Court in September dismissed telecom companies' review petition seeking corrections in the AGR calculations.

AGR is the revenue telecom operators earn from their core services, such as mobile and internet services, and licence and USO fees are charged on it. Telcos currently pay 3% of AGR as the licence fee, and 5% of AGR as the USO fee once a quarter. The USO fee goes towards the USO Fund that is used to ensure connectivity across unconnected regions of the country.

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In response to Mint's queries, S.P. Kochhar, director general of COAI, said, “We understand the concerns the government may have with regards to revenue, but we still hope that they can consider our request in the backdrop of continuous and significant investments that carriers have made in the country to ensure data connectivity for all people."

COAI (Cellular Operators Association of India) represents private telcos Reliance Jio Infocomm Ltd, Bharti Airtel Ltd, and Vodafone Idea Ltd.

“I am not surprised. Bureaucrats are very reluctant to sign off on such decisions since they fear being blamed for hurting exchequer revenues," said Mahesh Uppal, director at Delhi-based consultancy firm ComFirst India.

Uppal said the development was worrying because the licence fee makes little sense when the licence is neither exclusive nor bundled with resources like spectrum.

"The USO Fund is not illogical but because it has been poorly deployed," Uppal said. “Sadly, bureaucrats lack incentives to fix these problems that continue to distort the telecom market."

Tariff-levy mismatch

According to sector watchers, while tariffs and revenues from telecom services in the Indian market were among the lowest in the world, levies were among the highest.

“For the growth and development of the sector, including ensuring broadband for all, the rationalization of levies would be an important step," said Prashant Singhal, global telecom, media and technology leader for emerging markets at EY, adding that the government should first deploy unused balance in the USO Fund and then look to raise more.

The AGR for India's telecom sector rose by 8.24%, reaching ₹2.7 trillion, in 2023-24, up from ₹2.49 trillion in 2022-23, showed data from the Telecom Regulatory Authority of India (Trai) released in August.

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The government collected licence fees of ₹21,642 crore in 2023-24, which was 8.45% higher than ₹19,954 crore than a year ago.

According to data from Digital Bharat Nidhi, the new name of the USOF done earlier this year, in FY24, ₹18,187 crore USO fee was collected, of which ₹7,676 crore was disbursed. In FY23, ₹12,693 crore was collected and ₹3,500 crore disbursed. As of FY24 end, the total amount in the USO Fund stood at ₹79,638 crore.

As a reform measure announced in 2023, the Centre stopped collecting spectrum usage charges (SUC) from October 2022 onwards. SUC collections, therefore, declined by 32.3% to ₹3,369 crore in 2023-24 from ₹4,968 crore a year ago.

The background

In October, the COAI wrote to the government, asking for the relaxation on the grounds that the move would facilitate operators to plough the revenues back to the network for continuous upgradation and expansion.

The oft-sought demand from the telcos has been that the USO levy be held in abeyance until the ₹79,638-crore USO Fund is fully utilized. The licence fee should be abolished since telcos pay goods and services tax (GST) while acquiring spectrum and then the licence fee when using the spectrum, in addition to corporate tax, as is payable by all companies.

The COAI had said in its submission to the government that telecom companies were facing a “double whammy" as they were not only paying “substantial amounts" for buying spectrum but also being charged for the revenues they make from that spectrum—all of this on top of their investments in creating the networks.

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“The TSPs (telecom service providers) buy the spectrum at huge prices and also make substantial AGR-related payments for the same. This would amount to buying a house and paying the rent for the same," the industry body had written.

It added that a licence fee was appropriate when licences were bundled with the spectrum at the time of the introduction of the National Telecom Policy 1994. However, thereafter, spectrum was delinked from the licence in 2012 and is currently assigned after being bought through a transparent and open auction procedure; the logic of separately charging licence fees does not stand.