Presentation to the Hon’ble Minister of Communications & Information Technology

By AUSPI

Association of Unified Telecom Service Providers of India 19 January 2006 : New Delhi 1

Revenue Share License Fee

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Reduction in Revenue Share License Fee

• Unprecedented growth of telecom sector resulted in exceeding target of NTP 99 much ahead of stipulated time.

• This growth has been facilitated due to migration from fixed license fee to revenue share regime.

• In line with recent government decision of reduction in revenue share license fee for long distance services, there should be reduction in license fee to 6% including USO levy for UASLs.

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Comparison between Access Providers & Long Distance Operators

• Long distance operators have no obligation for setting up of infrastructure.

• Access providers have rollout obligations to provide access to the subscriber: in addition, they incur cost of customer acquisition, advertisement, customer retention, billing, collection and bad debts.

• Access providers contribute towards teledensity.

• Yet, access providers are subjected to highest license fee.

• CONFUSION : For ILD calls low rate of 6%, but for access providers it is higher rate varying from 6% to 10%.

• Access providers need the encouragement to cover up the falling ARPUs.

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Reduction in Revenue Share License Fee International Practices

• India has one of the highest tax regimens in the World, and levies must be reduced to bring them in line with International best practices.

• Such benchmarking with international practices can help India attract more FDI in the telecom sector.

Pakistan % age of revenue Sri Lanka %age China % age of revenue India % age of revenue Regulatory charges

Service tax, GST License Fee Spectrum Charge USO

Total Regulatory charges

GST 0.5% + 0.5% R & D Cost recovery 1.5%

2.5% +GST+ cost recovery

VAT 0.3% turnover (t.o.) + 1% of capital invested (inv) ~1.1% to t..o

Nil (only on ISD calls)

1.3% t.o.+1% inv+VAT

* Backbone spectrum charges extra **Est. from Spectrum fees & revenue of China Mobile

3% Nil ~0.5%* (China Mobile) Nil

0.5%+3% (Tax)

10% + GST 5 – 10% 2 ~ 6%** Incl in license fees

17%~26% + GST 5

Reduction in Revenue Share License Fee

• Reduction in revenue share license fee would not affect government revenue as with increase of subscriber base, government revenue also increases substantially.

Rs in Crores ESTIMATE OF GOVT. LEVIES FROM LICENSE FEE, SPECTRUM FEE &SERVICE TAX ON ALL TELECOM SERVICES Year

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Gross Revenue

48000 61000 80000 100000 139000 169000

AGR

40800 51850 68000 85000 118150 143650

License fee

4080 4770 6256 7820 10869.8

13215.8

Service tax * 5-10%

2040 4148 6800 8500 11815 14365

Spectrum Charge 2 4%

206 434 856 1530 2458 3275

Total Govt.

Levies

6326 9353 13912 17850 25142 30856

* Rate of service tax taken as 5% upto 13.5.2003, 8% upto 31.3.2005 and 10% thereafter.

• The proposed savings in License fee can be used for growth of rural telephone services.

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Reduction in Revenue Share License Fee

• MOF has stated that:

Quote A reduction in the absolute amount of these duties and levies shall allow telecom service providers to plough-back profits into enhancement of network and services. It is interesting to note that even with a reduction in the license fee chargeable from telecom service providers, the government can continue to collect the same revenue. This is so, because license fee is payable by telecom service provides as a fixed percentage of their revenue. With steadily rising revenues in the telecom industry, the absolute amount collected by the government will remain constant even if the percentage revenue share payable is reduced in a given proportion.

[Source : Strategy Paper of MoF] Unquote

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Thank you!

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