COAI asks government to cut SUC, licence fee, USOF contribution

By: | Published: November 28, 2018 5:04 AM

In a letter to telecom secretary, Aruna Sundararjan last month, COAI director general Rajan S Mathews has said that the growing financial stress in the sector is on account of high spectrum prices paid in auctions, growing burden of duties and levies and an intense price competition.

COAI asks government to cut SUC, licence fee, USOF contribution

As telecom sector reels under a debt burden of around Rs 7.70 lakh crore, which along with the hyper competition has impacted the operators’ ability to service interest obligations, industry body COAI has urged telecom ministry to reduce licence fee (LF), spectrum usage charge (SUC) and USOF contributions.

In a letter to telecom secretary, Aruna Sundararjan last month, COAI director general Rajan S Mathews has said that the growing financial stress in the sector is on account of high spectrum prices paid in auctions, growing burden of duties and levies and an intense price competition.

The growing financial stress on the sector has been echoed by Economic Survey analysis, Reserve Bank and various other banks. The increased competition in last few years has prompted a major round of price-cutting by the telecom operators. The same has deteriorated their interest coverage ratio, or telcos ability to pay outstanding interest on the debt, Mathews has said.

The domestic telecom industry is stated to be the most taxed when compared to taxes, levies and surcharges that are levied on telecom service providers in South Asia and ASEAN countries. The estimated levy on the sector ranges from 29% to 32%, where telecom specific levy contributes to 11-14%, Rajan added.

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Urging the government to come to the aid of cash-strapped telcos, Rajan suggested that contributions to the Universal Service Obligation Fund (USOF) be immediately brought down to 3%, with an ultimate objective of doing away with the levy in next 2-3 years in line with recommendations made by the sectoral regulator, Trai.

Sharing USOF data, Mathews said that out of the `92,765.36 crore collected between 2002-03 to 2018-19, around `48,393.03 crore is unutilised, which represents 52% of the total USO levy collected. “Thus, we suggest that department of telecommunications (DoT) may keep USOF contribution in abeyance till the entire amount of this corpus gets fully disbursed,” he added.

“Further, considering the financial health of operators, we earnestly request DoT to also reduce the remaining licence fee rate from 3% to 1% of the adjusted gross revenue (AGR),” he added.

At present, telecom operators pay 8% of their AGR as licence fee, of which USOF levy is 5% and LF is 3%, and around 5-6% as SUC. “There should not be any SUC for the spectrum acquired through auctions over the long run. At most a nominal fixed fee may be charged for SUC, to recover administrative costs. In the short term, the SUC charge should be reduced to a uniform 1% of AGR across all spectrum bands,” Mathews said.

COAI is not the only entity which has raised the issue of high taxes and levies in the sector. Kumar Mangalam Birla, chairman of Vodafone Idea has already met telecom ministry officials twice this month flagging the liquidity crunch being faced by the industry.

Birla is believed to have sought government’s help in form of some relaxation in the taxes and dues which industry pays on a quarterly basis to the DoT.

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