USF and Ignite: Telecom operators seek suspension of their contribution for two years

ISLAMABAD: Telecom operators have urged the government to suspend the industry’s annual contribution of around Rs10 billion comprising 1.5% of its annual gross revenue (AGR) towards the Universal Service Fund (USF) and 0.5% in the R&D Fund (Ignite) for two years aimed at partially mitigating the “digital emergency” triggered by an exponential increase in the cost of doing business under the prevailing economic situation, it is learnt.

Telecom operators have tabled the recommendations to the federal government through the Ministry of Information Technology and Telecommunication to immediately take some of the measures to improve fiscal space for the industry.

Of immediate utility in this context are industry-specific measures, within the power of the policymakers that provide the requisite space without affecting the overall budgetary positions of the wider economy.

As part of the package of such measures, they have requested the government to suspend, for two years, the industry’s annual contribution of around Rs10 billion which comprises 1.5% of its AGR towards the USF, and 0.5% in R&D fund (Ignite).

As per industry experts, both of these funds have historically accumulated a balance of around Rs55 billion parked in the Federal Consolidated Fund (FCF) besides substantial regular annual funding accumulated in the non-lapsable PLA account of the Ministry of IT&T. Telecom industry has contended that the current status of funding is enough to continue the programs for next two years without any major disruption. Operators also held the view that in case the fund falls short during the temporary suspension, it can be reinitiated to ensure seamless operations of the USF.

The USF was created in 2007 under the Telecom Act amendment of 2006 to extend cellular, broadband internet, fibre optics, and other telecommunication services to un-served or underserved areas. All telecom companies have been contributing 1.5% of their revenues to the USF.

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According to documents, the USF has spent around Rs100 billion till date to extend cellular, broadband internet, fibre optics, and other telecommunication services to un-served or underserved areas but some areas in Balochistan as well as merged districts of the Khyber-Pakhtunkhwa still lack access to basic telephony and mobile broadband services.

Under the law, the government of Pakistan can reduce or adjust these contributions; however, this temporary suspension may, in the worst case, lead to a need for re-prioritization of the USF spending for the next year and a half. However, the relief will not result in a major slowdown of the development activity under the mandate of the funds.

As a part of the proposed emergency stimulus package, the telecom operators seek urgent policy intervention such as suspension of funds contribution and staggering of license payments over 10 annual installments instead of five which will provide critically-needed fiscal space to the operators and enable them to continue to serve over 195 million subscribers.

In a recent meeting of the Prime Minister’s IT & Digital Economy Advisory Council’s Subcommittee on Telecom it was revealed that the telecom sector’s earnings in Pakistan rupees yield a negative growth upon translation to USD for foreign investors, constantly increasing spectrum installment payments being one of the key contributing factors.

According to the subcommittee despite a massive investment of $3.2 billion just in the last five years by telecom operators, even their sustainability is under serious question due to an exponential increase in the cost of doing business in Pakistan, with the past year of inflation inflicting a 116% hike to fuel; electricity rate 49%; interest rate 68%; and forex rate 42%.

The telecom subcommittee is chaired by CEO Jazz Aamir Ibrahim, whereas, other members include Hatem Bamatraf, President and CEO, PTCL Group; Danish Lakhani, CEO Cybernet; Wahaj Siraj, CEO, Nayatel, representation from Telenor Pakistan, Zong as well as industry experts Ismail Shah and Pervez Iftikhar. Officials revealed that USF had around Rs55 billion in balance and spent Rs100 billion since its inception for the expansion of telecommunication services to the under-served and un-served areas of the country. They maintained that despite massive growth, there were many areas that remained underserved.

The challenges, they asserted, that the USF faced, were rugged terrains, sparse population, harsh weather, lack of electricity, no backhaul, and poor logistics as well as security clearance.

The official further stated that USF spent around Rs55 billion against 50 projects during 2006 to 2019. However, the pace was expedited and USF earmarked Rs58 billion against 60 projects from 2019 to till date.

Telecommunication coverage was around 44% before the USF was launched in 2006-07 and now tele density stands around 90%.

Copyright Business Recorder, 2022