Broadband tariffs to rise as TRAI proposes higher revenue share

Broadband customers may soon have to pay close to 6% higher tariffs for basic services, if a new proposal by Telecom Regulatory Authority of India (TRAI) is accepted. TRAI has recommended that a flat 8% adjusted gross revenue (AGR) charge should be levied on all internet service providers (ISPs), as well as all holders of broadband wireless access (BWA) spectrum, which includes 4G players such as Airtel and Reliance Jio Infocomm.

However, for BWA license holders who have not yet rolled out services, TRAI has proposed to levy a presumptive AGR of 5% of sum of the total bid amount by the spectrum holder for the respective service area where they hold BWA spectrum, as applicable to the licensees who obtained spectrum in the auctions conducted in November 2012 and March 2013.

The recommendation will now be sent to the Department of Telecom (DoT), which will then pass it on to the Telecom Commission for final passing.

Commenting on this latest proposition, Jagjit Singh Kohli, managing director and CEO of Digicable, said, "On one hand, the government wants to promote broadband penetration, and on the other, it is levying such provisions and taxes. This shows the government has not got its priorities right, especially given the tax holidays they have provided in other areas of public interest. This reccomendation if passed in its current form, will lead to slowdown in broadband penetration, as it will considerably shoot up cost of operations for ISPs. They will pass it on to their consumers, which, depending on their tariff plan, could be an increase of close to 5-6%."

This AGR is in addition to the universal license fees that all these players have to pay to migrate to the new unified license regime during the course of the year after their old licenses expire, which has now been made compulsory for all players.

The new recommendation has been proposed to bring all Internet players on a level playing field (which includes BWA spectrum holders as well as the technology-neutral spectrum holders by telcos who won the same in the November 2012 and March 2013 auctions.), including old ISPs who do not possess a unified license – and hence had to pay a slab-based AGR or up to 6% for spectrum held by them, and a Rs 1 levy per year for the ISP license. However, new ISP players have to pay the cost of a unified licenses depending (which could be around Rs 20 crore for a national license), in addition to 8% AGR.

BWA players who won spectrum in the 2010 auctions include Bharti Airtel, Qualcomm, Infotel, Augere, Aircel and Tikona. Out of these players, only Bharti Airtel has so far rolled out BWA services in the form of 4G, and has bought out Qualcomm's BWA spectrum as well. Reliance Jio, which bought Infotel's spectrum, is expected to roll out 4G services by September.

This, TRAI believes, will hep the government plug loss of revenues accruing to it from ISPs and BWA spectrum holders who have yet not rolled out services, despite obtaining the spectrum in 2010.

In the recommendation, TRAI also re-defined the AGR as applicable to revenue availed by ISP license holders that include all types of revenue from Internet services, save deductions available for pass through charges and taxes/levies as in the case of access services, without any set-off for expenses. Revenues from Internet services shall also be included in the definition of AGR, TRAI said.

Rajan Matthews, director general, COAI, said, "Since moving to this new unified licensing regime, there has been a change to the revenue share model of the government, which necessitates an AGR by all spectrum holders (including ISPs who do not yet possess unified licenses.) Earlier on, ISPs did not have to pay any AGR. Thus, now, given the compulsory flat 8% AGR fee on all players, in addition to the new unified license fees, the cost of operations will considerably increase for internet providers. Smaller ISPs may be forced to shut shop if the cost becomes unbearable for them, and it is likely that end consumers may also be impacted."

This comes at a time when broadband players are already losing revenues to mobile operators who are engaged in a massive data tariff war – and hence such a step could further hurt their profitability.

India's broadband subscribers at the end of February 2014 were 58 million, while total mobile consumers were 903.36 million.