The Hindu Business Line : It's not cricket...

... Or so say some telecom players. If the DoT redefines Adjusted Gross Revenue on the lines suggested by TRAI, it could avoid additional fiscal burden to operators and would give a fillip to the telecom sector.

FOR the first time in years, both the Cellular Operators Association of India (COAI) and the Association of Basic Telecom Operators (ABTO) have joined hands to press for further relief in the revenue-sharing licence fee's that telecom operators annually cough up to provide services across the country.

Coming as it does just weeks after the Government announced a financial relief package, which includes a reduction in their licence fees by between two to four percentage points, this may sound like greed on their part. However, a close look at their latest request does show that there is merit in what they have been seeking. Especially since the Telecom Regulatory Authority of India (TRAI) too has backed their claims.

The main crux of the issue is the definition of "Adjusted Gross Revenue" (AGR) that is used to calculate the annual licence fees payable by the operators. The present definition includes several revenue streams, which are unrelated to service activities of the telecom operators. They include interest revenues, revenues from sale of handsets, interest and dividend income from investments, sale of capital goods and cost recovery from sharing infrastructure.

These revenues are unrelated to the licence activity of the service providers and need not be included for the purpose of calculating revenue share licence fees. Furthermore, the AGR definition does not allow for deductions due to bad debts, waivers/discounts to subscribers, roaming charges, which is form of pass through revenues and port charges.

As per the definition spelt out in the licence agreements of the operators, AGR for the purpose of levying licence fee as a percentage of revenue should mean the gross revenues as reduced by

PSTN related call charges (access charges) actually paid to other telecom service providers for carriage of calls, and

Service tax for provision of service and sales tax actually paid to the Government, if gross revenue had included the component of service tax.

In other words, gross revenue includes all revenues accruing to the licensee on account of goods supplied, services provided, leasing of infrastructure, use of its resources by others, application fee, installation charges, call charges, late fees, sale proceeds of instruments, handsets, bandwidth, income from value added services, supplementary services, access or interconnection charges, roaming charges, any lease or rent charges for hiring of infrastructure and any other miscellaneous items including interest dividend without any setoff of related items of expense etc.

By not allowing deductions for these items, the DoT would go against the principle that if any income is charged to a tax/levy, then the underlying expenses incurred to earn such incomes must also be allowed as deduction. The TRAI has also repeatedly said that only those revenues that accrue from operations under the licence should be considered while computing revenue share calculation. The operators are therefore justified in seeking these changes.

If the DoT is serious about giving a fillip to the telecom sector, which is poised for take-off, it has to redefine the AGR on the lines suggested by the TRAI and avoid additional fiscal burden to operators.

The Authority had in August 2000 recommended that "AGR for the purpose of levying licence fee shall mean the gross revenue accruing to the Licensee by way of operations mandated in the licence (inclusive of revenue on account of value added services, supplementary services and the sale of handsets) plus revenue accruing through resellers, franchisees etc plus revenue foregone through subsidies on handsets or any other rebates as reduced by: interconnection/access charges payable to other service providers for carriage of calls; roaming revenues collected on behalf of cellular mobile service providers; service tax paid or payable and proceeds from sale of handsets".

It should be mentioned here that the existing licence fee structure for basic as well as cellular operators has been fixed at 12 per cent of the AGR for metro service areas and category A circles, 10 per cent for category B circles and 8 per cent for category C circles.

This is slated to be reduced from April 2004, when as part of a relief package for the industry, the licence fees for basic service providers, Global System for Mobile Communications (GSM) cellular operators and Code Division Multiple Access (CDMA) mobile operators would be reduced by two percentage points. Further, the first and second GSM cellular licensees in all circles, except the metros, would get an additional two percentage point reduction in the licence fees for a period of four years.

In addition to this, if the AGR definition is modified to reflect only the core business revenues of the operators it will surely lead to more incentives for the operators to reduce the tariffs further and also give them enough leeway to invest in their network expansion, which will only benefit the end consumer. A change in this clause should surely provide the much-needed impetus to the operators to get on with their business and provide additional value to their customers. That's when the true "take-off" stage for the sector could begin.

grambabu@thehindu.co.in

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