Telcos hang up on USO fund

The whole logic behind the setting up of a Universal Service Obligation Fund (USOF) to promote rural telephony seems to have gone for a toss. With high subscriber growth and rock bottom call rates increasing usage, operators don't seem to be in need of any support from USOF to roll out operations in the once unprofitable hinterland.

Bharti Airtel, Reliance Communications (RCOM) and Aircel submitted negative bids for some of the active infrastructure slots in the bidding process for setting up telecom infrastructure in rural areas, implying they will pay to the USOF instead of taking its support. Others, like Bharat Sanchar Nigam (BSNL), also submitted zero bids, showing they also did not need any support.

Industry analysts contend that while it may be too early to write off the fund, USOF needs to have a re-look at its approach to rural telephony. "The whole approach to the USOF seems to have got skewed. The challenge is to reach out to people in villages by giving them a choice between mobile and basic services. This does not seem to be happening given the over emphasis on mobile telephony at the expense of basic services," a BSNL official told ET.

In 2005, DoT had launched Rural Direct Exchange Line (RDEL) scheme to offer basic services in rural areas. That scheme has ended on March 31 this year and was not extended by USO fund despite BSNL and industry body AUSPI demanding its extension to complete roll out targets.

All telecom companies pay 5% of their adjusted gross revenues (AGR) towards the USOF, which is used for funding telecom infrastructure in rural India. As per DoT's estimates, the unutilised USO funds stands at Rs 9,194.12 crore (around $2bn) as of March 07. "In case operators don't want to be compensated for providing rural connectivity, the contribution for USOF should be reduced from 5% to 1%," he said.

Rural tele-density is around 2% and has been growing at an extremely slow pace. The inability of USOF to ensure its full and optimum utilisation has led to huge balances in the fund and equally huge gaps in rural teledensity.

"Rural pockets that were earlier unviable are now profitable. Affordability has increased and operators don't need USOF support. There is a need to revisit the contribution to and utilisation of USO fund," Gartner India senior research analyst Neha Gupta said.

Operators across the globe contribute to similar "universal service funds". In the US, operators paid close to $7bn last year towards USF for telephony in low-cost high-usage areas. "But zero bidding and negative bidding is unique to the Indian market. It also shows that USOF needs to make itself more usable," said another analyst.

Ms Gupta said there is no need for high USO fund. "It'll be more profitable for operators who can pass on the benefit to users. Costs which are not natural to the company should be cut as it will benefit both companies and consumers," she added.