Financial Daily from THE HINDU group of publications
Wednesday, Feb 18, 2004
Info-Tech - Regulatory Bodies & Rulings
DoT in no hurry to change norms for calculating licence fee
New Delhi , Feb. 17
IN what could be a setback for telecom operators, the Department of Telecommunications (DoT) is in no hurry to change the definition of adjusted gross revenues (AGR) for calculating their annual licence fees.
A change in the definition, as sought by the service providers would have reduced their burden of licence fees starting next fiscal, which in turn could also lead to lower tariff rates.
According to official sources, although the DoT is yet to take a final decision on the matter, it is unlikely to rush through with the changes, as it would affect the revenue stream of the Government. More so, since it had only recently announced cuts between two and four percentage points in the licence fees starting April 2004.
They pointed out that both the cellular and basic operators have been lobbying hard to revise the AGR definition to exclude several revenue streams, which are unrelated to their service activities. These include interest revenues, revenues from sale of handsets, interest and dividend income from investments, sale of capital goods and cost recovery from sharing infrastructure.
The operators had written to the DoT stating that these revenues are completely unrelated to the licence activity of the service providers and it is irrational and unjustified to include the same 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.
"By not allowing deductions for these items, the DoT is violating the well-established 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,'' they had noted.
That apart, they also pointed out several anomalies in the definition that has been adopted by DoT and sought that they be rectified. Even the Telecom Regulatory Authority of India (TRAI) has come out in their favour by maintaining that AGR should only include revenues from licensed activities.
However, the DoT has taken the view that a change in the definition, so close to the reduction in the licence fees may not be appropriate. If need be the AGR definition can be changed at a later date, they said.
They pointed out 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 has been reduced by two percentage points for all operators across the board starting next fiscal, while the first and second GSM cellular licensees in all circles except the metros, have been granted an additional two percentage point reduction for a period of four years.
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