Contribution to R&D fund: cellphone companies to pay 0.5 percent of gross revenue

The government has decided to make it mandatory for cellular phone companies to contribute 0.5 percent of their gross revenue as research and development (R&D) fund as is already being contributed by the fixed line companies like Pakistan Telecommunication Company Limited (PTCL), sources close to Privatisation Minister told Business Recorder.
"Uniform rate of R&D contribution of 0.5 percent is being approved for all fixed line and cellular operators as this will maintain the spirit of fixed line policy 2003 which states that none of the licencees be at any position of disadvantage," sources said.
The Cabinet in its meeting on February 18, 2009 had considered the summary on equal treatment for contribution in research & development (R&D) fund for fixed line and mobile operators and had constituted a committee comprising Minister for Information, Minister for Privatisation, Minister for Industries and Production, Minister for Science and Technology, Minister for Interior and Prime Minister's Special Assistant on Social Sector.
In the summary, the Ministry of Information Technology (IT& Telecom Division) had stated that under the de-regulation policy 2003, approved by the Cabinet, all fixed licencees are required to pay R&D fund contribution at 1 percent of their gross revenue minus mandatory deduction. Later, the Cabinet in its meeting on January 28, 2004 approved R&D contribution in respect of cellular mobile operators at 0.5 percent. The two rates for two different service providers created an anomaly which required redressal on the basis of equity and fairness.
The committee held several meetings to discuss the issues that were deliberated and discussed in the Cabinet meeting which were twofold: 1) gainful utilisation of ICT R&D fund; and 2) the issue of providing level playing field and equal treatment for contribution in R&D fund for fixed line and mobile operators.
After exhaustive discussions, it was resolved by the committee that R&D fund could not be utilised in areas other than ones in its charter. However, Ministries of Science and Technology and Information Technology were requested to hold separate meetings to examine the possibility of provision of funds for research projects being undertaken under the aegis of the Ministry of Science and Technology.
On the issue of equal treatment for contribution in R&D fund by fixed line and cellular mobile operators the committee was of the unanimous view that all stakeholders/service providers should be provided level playing field and there should be a uniform rate of R&D fund levy for fixed operators--from 1 percent to 0.5 percent of annual gross revenues as in the case of cellular mobile operators.
Giving the details, sources said that in view of the importance of the indigenous development of information and communication technology and human resources, provisions for contribution for R&D fund was made in the De-regulation Policy 2003, approved by the Cabinet. The policy required all fixed line licencees to provide R&D fund contribution @ 1 percent of gross revenue, minus inter-operator and related Pakistan Telecommunication Authority (PTA)/Frequency Allocation Board (FAB) mandated payments.
In addition, clause 7.2 of the fixed line de-regulation policy highlights that the same treatment be given to cellular operators as well, while formulating Cellular Policy. Clause 7.2 of fixed line policy, reads as, "Under proposed new policy framework, in order to ensure that fixed line telephone licencees are not placed in a position of disadvantage, the cellular licencees would also be required to contribute toward R&D and Universal Service Fund (USF) in the same manner as fixed line licencees". Similar treatment was given to fixed line licencees and cellular operators in the case of USF. Licencees were required to pay 1.5 percent of their adjusted gross revenues in the USF.
The cellular mobile policy, prepared and later approved by the Cabinet in its meeting on 28th January 2004 stated: "R&D contribution would be @ 0.5 percent of gross revenue minus inter-operator and related PTA/FAB mandated payments to the R&D fund". This contribution percentage was based on the rationale of fast anticipated growth in cellular wireless sector. However, along with this lower contribution by cellular operators the percentage reduction in proportionate contribution by fixed line licencees did not get their attention.
Resultantly, an anomaly in contribution of R&D fund for fixed line licencees cropped up, raised by Pakistan Telecommunication Company Limited (PTCL) and PTA. In view of requests of PTCL and PTA, the Ministry of Information and Technology, a case was initiated for introduction of uniform rate of 0.5 percent for cellular as well as fixed line operators, sources saidd
The President of PTCL also held a meeting with Minister for Investment Waqar Ahmad Khan and raised the issue of disparity in R&D contributions between the fixed and cellular operators. Ministry of Investment referred the case to Ministry of Information Technology (MolT) with the observation that the case of PTCL required immediate attention for its resolution and provision of uniform treatment in connection with the R&D contribution. Investment Ministry also urged MoIT to initiate immediate measures to have uniform policies.
The Ministry of Information Technology has submitted a summary to the Cabinet, proposing that the Cabinet should consider uniform R&D contribution of 0.5 percent for all fixed line and cellular operators to maintain the spirit of para 7.2 of fixed line policy 2003 which envisages that none of the licencees be at any disadvantage.
Sources said that after approval by the Cabinet, which is scheduled to meet on November 18, 2009, fixed line de-regulation policy clause 4.2.3.5 LL licencees will devote 0.5 percent of gross revenue minus inter-operator and related PTA/ FAB mandated payments to national ICT R&D fund. The existing licencees will be offered the new rate with immediate effect," sources added.