Indian telecom service providers’ hopes for relief from the burden of levies on adjusted gross revenue (AGR) are fading fast. The Union Finance Ministry, grappling with revenue concerns, has signaled a reluctance to grant any concessions to the industry. Two senior officials close to the discussions, speaking on condition of anonymity, revealed that while the matter is under consideration, it’s unlikely to gain approval.
The Ministry’s stance is rooted in the fear of impacting government revenue. Telcos had sought a prospective removal or substantial reduction of the license fee and universal service obligation (USO) fee, currently calculated as a percentage of AGR. This request stemmed from the Supreme Court’s September dismissal of their review petition seeking revisions to AGR calculations.
AGR, the revenue telecom operators generate from core services like mobile and internet, is currently subject to a 3% license fee and a 5% USO fee, paid quarterly. The USO fee contributes to the USO Fund, dedicated to extending connectivity to remote regions.
S.P. Kochhar, director general of the Cellular Operators Association of India (COAI), acknowledged the government’s revenue concerns while expressing hope for a favorable reconsideration in light of the significant investments telcos have made to ensure nationwide data connectivity. COAI represents key players like Reliance Jio Infocomm Ltd, Bharti Airtel Ltd, and Vodafone Idea Ltd.
Mahesh Uppal, director of Delhi-based consultancy firm ComFirst India, echoed the sense of disappointment. He highlighted the bureaucratic reluctance to approve such decisions, driven by the fear of being held accountable for any potential revenue shortfall. Uppal pointed out the illogical nature of the license fee, especially considering the lack of exclusivity and bundled resources like spectrum. While recognizing the USO Fund’s importance, he criticized its inefficient deployment and the lack of incentives for addressing these market distortions.
Sector watchers emphasize the stark disparity between India’s low telecom tariffs and revenues and the hefty levies imposed on the industry. Prashant Singhal, global telecom, media, and technology leader for emerging markets at EY, advocates for rationalizing these levies to support sector growth and ensure broadband access for all. He suggests prioritizing the utilization of the existing unused balance in the USO Fund before seeking additional revenue.
Data from the Telecom Regulatory Authority of India (TRAI) reveals an 8.24% surge in AGR for the Indian telecom sector in 2023-24, reaching 2.7 trillion, up from 2.49 trillion in 2022-23. The government garnered 21,642 crore in license fees during this period, an 8.45% increase from the previous year.
Despite the significant amount collected, the USO Fund still has a balance of 79,638 crore. In FY24, 18,187 crore was collected in USO fees, with 7,676 crore disbursed.
In a reform measure announced in 2023, the government ceased collecting spectrum usage charges (SUC) from October 2022 onwards. This led to a 32.3% drop in SUC collections, reaching 3,369 crore in 2023-24 compared to 4,968 crore a year ago.
The telecom industry, represented by COAI, has persistently called for a relaxation of these levies, arguing that it would enable operators to reinvest earnings into network upgrades and expansion. They advocate for suspending the USO levy until the existing 79,638-crore USO Fund is fully utilized. Furthermore, they contend that the license fee should be abolished, citing the already existing payments for spectrum acquisition through auctions and the subsequent payment of GST and corporate tax, which are applicable to all companies.
The COAI highlights the paradoxical situation where telcos are required to pay hefty sums for spectrum while also facing levies on the revenue generated from its use. This, they argue, amounts to paying rent on a house that has already been purchased.
While acknowledging the rationale behind the license fee when it was bundled with spectrum under the 1994 National Telecom Policy, the COAI points out that the delinking of spectrum from the license in 2012 and the subsequent transparent auction process have rendered the separate license fee redundant.
The outcome of this standoff remains uncertain. The government’s focus on revenue generation stands in direct conflict with the industry’s need for financial flexibility to invest in infrastructure and technology. This situation underscores the critical need for a balanced approach that prioritizes both financial sustainability and the long-term growth and development of the Indian telecom sector.
