Given how just R24,900 crore of the R58,600 crore collected by the Universal Service Obligation Fund (USOF) between FY02 and FY14 has been disbursed to telecom operators, it is time to take a serious call on its future. Indeed, even this number is not representative since around R6,950 crore of this was reimbursement of licence fee and spectrum charges to BSNL which should not strictly have been made from the USOF. When it was started, the USOF had a noble objective, to use part of the revenues of telcos in urban areas to rollout networks and services in rural areas. As the data shows, however, the working of the USOF is so cumbersome, it has achieved very little. What is worse, as the CAG points out, the rest of the money has been spent by the government for its routine expenses. Unlike a cess where the money is earmarked only for a specific purpose, the USOF money—5% of the adjusted gross revenues of telcos—is first given to the Consolidated Fund of India which then transfers it to the USOF. So, with the USOF not doing much in terms of disbursing funds, the central government simply decided to keep the funds.
Part of the money, it is true, will come back once the ambitious National Optical Fibre Network (NOFN) gets going. The NOFN, which is to connect 2.5 lakh gram panchayats, is supposed to cost R21,000 crore. But, in this case too, the government needs to rethink the project. Of the revised first phase target of laying 1.2 lakh km of fibre, only 13,000 km of pipe and 7,400 km of cable was laid as of the end of December 2014—work has started in just 455 of the 6,533 blocks targeted in the first phase; in other words, another big delay is almost certain since a total of 7 lakh km of fibre has to be laid across the country. The point here is that just because money is available for free doesn’t mean it does not have to be used carefully—it may be a better idea to involve private sector players in NOFN.
Also, while rural teledensity is only 45% compared to 142% in urban areas, it doesn’t make sense to continue with the USO levy since it is clear this is not helping increase rural penetration. Why not scrap the levy and leave it to telcos to roll out rural networks on their own? Indeed, the Trai’s recommendations on allowing virtual network operators (VNOs) to lease out BSNL’s landline network to create broadband facilities is probably a better way to increase penetration of rural internet.