Committee Of Secretaries (CoS)

  • On 29th October, 2019, the government constituted aCommittee of Secretaries (CoS) to study financial stress being faced by the telecom sector in the country.
  • The Committee, headed by the Cabinet Secretary Rajiv Gauba and representatives from the ministries of finance, law and telecom, is expected to submit recommendations in a time-bound manner.

Objective

  • To examine the financial stress of the telecom sector and recommend measures to mitigate it.
  • To look at ways of creating a favourable investment environment for the sector.

Background

  • The Government’s move came in the backdrop of Supreme Court’s order on the calculation of Aggregate Gross Revenue (AGR) in favour of the government.
  • Following the order, the telcos may have to pay the government Rs. 1.42 lakh crore within three months. This came as a huge blow to the industry that is already reeling under a debt of about Rs. 4 lakh crore.
  • The top court rejected the definition of adjusted gross revenue (AGR) proposed by telecom operators that excluded revenue from non-core telecom operations such as rent, dividend and interest income, marking the end of a 14-year-long legal tussle between the department of telecommunications (DoT) and operators.
  • While the dispute over the definition of AGR has been on since 1999, the important aspects are the Annual License Fee (LF) of 8 percent and Annual Spectrum Usage Charges (SUC) of about 1-6 percent of AGR payout to be made by the TSP (along with interest and penalties), which are likely to throw the TSPs into a debt trap.

Current Issues in Telecom Sector

  • Noting the gross revenue of the industry had fallen between 2017-18 and 2018-19, the price of data for the customer at an average of Rs 8 per GB, the lowest in the world.
  • Additionally, the average revenue per user per month has declined from Rs 174 in 2014-15 to Rs l13 in 2018-19.

Source: ET

Issues to Consider

  • The Committee will work out a relief package for the telecom sector in order to mitigate the impact of the more than Rs.1.4 lakh crore that the telcos may need to pay the exchequer.
  • Will look into the demand of telcos for deferment of spectrum auction payment dues for the years 2020-21 and 2021-22 in order to ease cash flow.
  • Will review various demands made by the industry, reduction in spectrum usage charges and the Universal Service Obligation Fund (USOF) charges.

Aggregate Gross Revenue(AGR)

  • AGR is the usage and licensing fee that telecom operators are charged by the DoT.
  • It is divided into spectrum usage charges and licensing fees, pegged between 3-5 percent and 8 percent respectively.
  • As per DoT, the charges are calculated based on all revenues earned by a telco– including non-telecom related sources such as deposit interests and asset sales.
Spectrum Usage Charges (SUC)
  • SUC is payable by the licensees providing mobile access services, as a percentage of their AGR.
  • It is payable as per the spectrum slabs/ rates notified by the Government from time to time.

Universal Service Obligation Fund (USOF)

  • The National Telecom Policy (NTP), 1999, provided that the resources for meeting the Universal Service Obligation (USO) were to be generated through a Universal Access Levy (UAL), at a prescribed percentage of the revenue earned by the telecom licensees to be decided in consultation with the TRAI.
  • USOF was established in 2002, under the DoT, to provide subsidies to ensure information and communication technology services being provided to everyone across India, especially in the rural and remote areas.
  • The Indian Telegraph (Amendment) Act, 2003gave statutory status to the Universal Service Obligation Fund (USOF).
  • As per the Indian Telegraph Act 1885 (as amended in 2003, 2006 and 2008), the Fund is to be utilized exclusively for meeting the Universal Service Obligation.

Telecom Regulatory Authority of India (TRAI) Suggestions

  • TRAI is expected to examine prescribing a minimum charge for voice and data services to ensure long-term viability and robust financial health of the sector.
  • It has suggested that USOF charges - paid to make telcos take their services to rural areas- be 3 percent, and not 5 percent.

Suggestion by Telecoms

  • Telcoshave suggested that both sides- the government and telcos -enter a bipartite agreement about the amount to be paid and a plan on how it can be paid. It offered to pay only the disputed dues without the high penalty and interest.
  • It suggested a staggering payment schedulewhich is more than three months.
  • To provide relief in the future by reducing the license fee.
  • To adjust the input tax credit is available with the government in order to provide relief as for now.

Source: Business Standard

Way Forward

  • The government has fast-tracked reforms in the telecom sector and continues to be proactive in providing room for growth for telecom companies.
  • Considering the current situation, faced by the telecom sector, the government is considering a floor price for telecom services as part of the relief measures proposed for the industry.
  • Further, help and support extended to telecom service providers (TSPs) with regard to duties, levies, and installments will enable them to have better cash flows and investible surplus for the orderly growth of the sector.
  • The newly constituted panel can give an immediate relief package to ensure financial viability of both the operatorsas well sector.

Source : Civil Services Chronicle Online, October, 2019