On USO Fund: Speed up broadband roll-out

News: It has been almost two decades since the Union government’s telecom policy set aside 5% of its receipts from the sector towards the Universal Service Obligation (USO) fund. The USO fund now totals in excess of Rs 1 trillion.

The management of this fund is often in question.

Also, in light of the size of the amount remaining in the fund, almost Rs 60,000 crore at present, a rent-seeking war has begun in the telecom industry.

Note: When a firm uses its resources to procure an unwarranted monetary gain from external elements, be it directly or indirectly, without giving anything in return to them or the society, it is termed as rent-seeking.

What are the issues with the management of the USO Fund (USOF)?

As pointed out by the Comptroller and Auditor General of India (CGI),

– The USO levy is first supposed to be credited to the Consolidated Fund of India (CFI). It is then subsequently transferred to a non-lapsable USOF created in the public account. This statutory obligation, to pass dues on to the USOF is not happening in a timely manner. As a result, the money has remained in the Consolidated Fund of India, where it has been used to artificially reduce the fiscal deficit.

– The fund, even when topped up, has been only half used. This defeats the purpose of the USOF to manage market failures in the telecom sector by boosting infrastructure and access in underserved areas of the country.

– About half the money disbursed from the USO fund so far has gone towards the BharatNet project initiated in 2011. The project has been delayed till early 2023. It was originally supposed to be 2016. It is worth asking whether a shortage of funds has caused this delay and if so, then why the USO fund has not been fully utilized.

– Rent-seeking: The state-controlled providers such as BSNL have traditionally seen the money in the USO fund as ways to support their operations. Now, various other telco players, apart from the BSNL, have staked their claim. This has given rise to a rent-seeking war. For instance: Bharti Airtel-backed OneWeb have noted that they might provide a cost-effective way of getting broadband connectivity to hard-to-reach areas. Also, Reliance Jio has argued that the USO fund could be used to subsidise handsets. This would enable low-income users to upgrade from feature phones to smartphones, and thereby increase the uptake of mobile broadband in the country.

What is the way forward?

Govt must stop using the USO Fund arbitrarily, and should create a road map for utilising the funds based on transparent and commonly agreed principles.

As per the recommendation of the 2015 expert committee, the USO Fund can be allowed to borrow on the market to smoothen its capital flows in the short term, with the interest cost being considered part of the project expenses.

The USO fund should be fully utilised in BharatNet Phase II, with a focus on a transparent technology-neutral financing of broadband infrastructure.

The focus must be on infrastructure creation, not on other forms of subsidies.

Source: This post is based on the article “Speed up broadband roll-out” published in The Business Standard on 13^th Dec 2021.