Telecom companies providing faster rural coverage would now get an incentive to pay less towards the universal service obligation fund (USOF).

The fund is used by the government to finance rural telecom projects. This could improve the bottom lines of several companies as they now contribute 5% of their adjusted gross revenues (AGR) to the fund.

Instead companies covering 100% of development block in a service area would pay only 2%. As per the proposal finalized by the department of telecommunications (DoT), telecom companies would be provided with graded incentives to fall in line.

So, companies covering up to 50% of development block in service areas would continue to pay 5% of their AGR towards USOF. But as soon as the coverage area increases to 70%, their payment is reduced to 4%. Upon reaching 90%, they would be required to pay 3%.

The coverage would apply to each district separately in whole service area. The plan by DoT is therefore better than the recommendation of the Telecom Regulatory Authority of India (Trai), which had suggested that incentive should be given to those licencees who cover 75% of development blocks in any service area excluding four metro service areas. Trai had proposed that such licencees shall pay 3% USO fee instead of 5%.

Welcoming the suggestion, DoT noted that, ?this would be a welcome step by the licencee companies as financial incentive scheme would prompt them to provide coverage in rural areas. However, it is feared that the toughest 25% of the development blocks would be left out by the licencees. Hence it is proposed to extend the scheme further so that licencees put their efforts to cover 100% of the development blocks in a service area?.

The move would be welcomed by the operators as increasingly they are moving towards rural areas as the next round of subscriber addition is going to come from these areas. In fact, the operators had urged the communications and IT minister, A Raja that since they were on their own going towards rural areas the contribution towards USOF should be reduced.