Explained: What is USOF and Why Indian Telcos Want to Get Rid of It?

The Universal Service Obligation Fund (USOF) was set up in 2003 by the Indian government to speed up connectivity in rural and backward parts of the country. While it was set up with good intent for the nation, the fund has been sucking up telcos dry of cash for a long time now. The telcos have to contribute to the USOF out of their revenues.

For the unaware, the 8% license fee (LF) that telecom companies have to pay to the government out of their adjusted gross revenue includes 5% USOF. So more than half of the license fee that telcos pay goes towards USOF.

The telcos have asked the government to remove USOF obligations from AGR and, at the same time, have requested for reducing the LG to 1%.

Telcos Cash Flow Not So Good Due to LF

LF is a big part of the dues that each and every active telecom service provider (TSP) needs to pay to the government. The higher the AGR, the more money the telcos need to pay to the government. There are more obligations and liabilities that the telecom companies need to pay. Thus, the burden of USOF is stressing the cash flow of the telcos.

USOF is already worth thousands of crores. The telcos just want to get rid of contributing more to the fund now.

At the same time, satellite players who are coming into the country starting this year are requesting the government’s help from USOF to roll out services. But the telcos are very much against it.

At the end of the day, USOF was created to help backward and rural areas of the country with connectivity. Thus, it will be interesting to see whether the government will side with the telcos here or with the satcom (satellite communications) players. For the time being, USOF will be a part of LF for the telecom companies. The upcoming budget will determine what will happen in this regard.