India - ending licence fees?

Govt mulls proposal to scrap licence fees for landline firms

Two months after the access deficit charge scheme, which compensated Bharat Sanchar Nigam Ltd (BSNL) for its loss-making rural telephony operations, was phased out, the Telecom Commission today discussed a proposal to waive in perpetuity the annual revenue share (licence fee) to be paid by fixed-line service providers in the country.

The proposal is aimed at arresting the decline in wireline services growth and spur availability of broadband internet access across the country. The move has been high on the agenda of Communications Minister A Raja for some time now.

The financial implication of the waiver is pegged at around Rs 2,000 crore in 2008-09 alone. The Telecom Commission meeting, chaired by department of Telecom Secretary Siddhartha Behura and attended by officials from the department of economic affairs, industry department and Planning Commission among others, decided that a revised proposal, incorporating some suggestions made at today's meeting, be put up for approval.

The major beneficiary of the move would be BSNL, the country's largest fixed line service provider. The state-owned operator and sister-concern Mahanagar Telephone Nigam Ltd (MTNL), which provides services in Mumbai and Delhi, have a 91 per cent market share of India's estimated 40 million fixed-line users. In rural India, BSNL's market share is 99.88 per cent.

Other private operators will also benefit, companies such as Bharti Airtel, which offer wireline and broadband services in various states, and new entrants. Altogether, the private operators paid around Rs 204 crore on account of annual licence fees in 2006-07, with the amount rising to nearly Rs 214 crore in 2007-08.

A telecom access service provider has to pay the government 6, 8 and 10 per cent (depending on the area in which it operates) of its annual gross revenues. This includes the contribution towards the Universal Service Obligation (USO) Fund, which that supports rural telecom services.

Meanwhile, the Telecom Commission today deferred taking a decision on a proposal to divest the government's residual 26.12 per cent equity in Videsh Sanchar Nigam Ltd (VSNL), now called Tata Communications.

The deferment was taken in view of the proposal by the Tata group for a rights issue that will dilute the government's equity if it does not subscribe to it. In addition, given that the auction of VSNL's surplus land bank of around 773 acres is yet to be approved, the government will now wait for a resolution of these matters before taking a final call on the stake sale.