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BW Businessworld

The Loaded Bill

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Here's some not-so-good news. Your mobile phone bill could go up some more.  The Department of Telecommunication' (DoT) has decided to impose an 8.5 per cent charge on the adjusted gross revenues (AGR) of all telecom service providers as part of the regulatory charges they pay to the government.
This decision will increase government earnings from telecom operators to Rs 18-20,000 crore, a sharp increase from the current levels — Telcos paid Rs 13,588 crore for 2009-10. But falling average revenue per user (Arpu) and declines in usage minutes by subscribers have slowed the growth of telco's revenues considerably.

Understandably, the DoT's decision met with opposition from the telcos, especially given the decline in revenue growth. The total regulatory charges on telcos — including state and central sales and service taxes — is over 20 per cent of total revenues (see table).

But the government's rationale appears to be fairly reasonable as well. From official accounts, the majority of the service providers have been under-reporting voice and data call revenues by classifying them under their Internet service provider (ISP) licences, says a senior officer in the finance department of the DoT.

At present, both mobile and fixed line operators pay a licence fee of 10 per cent, 8 per cent and 6 per cent of AGR for metro and category A cities, category B and category C service areas respectively. The ISP licence fee is 6 per cent across all areas. Companies offering broadband wireless services do not pay any share from their AGR. The international long distance (ILD) and national long distance (NLD) operators also pay 6 per cent of AGR.

But telcos also pay additional fees for the spectrum they hold in each circle — 2 to 6 per cent. Now, once the proposed 8.5 per cent charge is implemented, the infrastructure service providers like GailTel, PGCILTel and RailTel will have to pay that fee; currently, they only pay the taxes that all telcos pay.

Could this hurt the planned penetration of mobile telephony and Internet access to rural India? "This will kill any hope of pushing broadband wireless access by private and public sector companies," says Rajesh Charia, president, Internet Service Provider Association of India.

Official consensus is also apparently elusive. The Telecom Regulatory Authority of India (Trai) had opposed such a move early this year when the DoT proposed to hike charge on AGR to 10 per cent. Instead Trai suggested imposing 6 per cent; the imperative of penetration, especially in the rural areas, takes precedence in their thinking. Will Trai have a say in the decision? "We will send the proposal to Trai again," says an official in the telecom commission. But that could be a mere formality; if there is a difference of opinion, DoT will have the final say.

A senior executive of a leading telecom company says the DoT decision would impact the expansion of telecom services. "The average revenue per subscriber is falling, and imposing a uniform charge on AGR across all circles now is unwarranted."

"It (the uniform charge) will help an operator in A circles, but the growth is now in C circles, and they will have to pay more," points out Mahesh Uppal, a telecom analyst. That means higher tariffs for new customers who already face higher rates because of the recent tariff increases announced by Airtel, Vodafone and others. That means a lot of unhappy customers, which no telecom company wants.

(This story was published in Businessworld Issue Dated 05-09-2011)