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TRAI exploring license fee exemptions and subsidies to subscribers to increase fixed-line broadband connections

The Telecom Regulatory Authority of India (TRAI) is exploring incentives it can provide to increase fixed-line broadband connections in the country including exempting internet service providers from license fees and giving customers direct cash benefits, the regulatory body said in a supplementary consultation paper published on Wednesday.

Relevant stakeholders are requested to submit their comments to TRAI by 03.06.2021 and counter-comments by 10.06.2021. Comments should be emailed to Shri Sunil Kumar Singhal, Advisor (Broadband and Policy Analysis), Telecom Regulatory Authority of India on the e-mail id advbbpa@trai.gov.in with a copy to ja3-nsl@trai.gov.in

Context: In August 2020, TRAI had published a consultation paper titled Roadmap to Promote Broadband Connectivity and Enhanced Broadband Speed, which covered a wide range of issues plaguing broadband penetration in India including changing the definition of broadband, a system for measuring speed and latency, right of way to install infrastructure, and much more. You can read the paper in its entirety here or our summary here. Following consultation, one of the recommendations put forth by TRAI to the Department of Telecommunications (DoT) was to exempt license fee on the revenues earned on fixed-line broadband for at least 5 years. DoT wrote back asking TRAI to consider if this will be misused by internet providers and if direct benefits to consumers can help TRAI better achieve its goals.

Why increase fixed-line broadband connections?

Higher reliability, higher speed, lower latency, symmetric download and upload speeds, and low cost per GB of data consumption compared to wireless networks are some of the benefits of fixed-line connections highlighted by TRAI in its paper. These characteristics make fixed-line broadband the most reliable medium for data-heavy applications including video streaming and video conferencing, which have both increased tremendously over the last year due to the pandemic. Yet, fixed-line connections are not all that popular in India. As of 31st December 2020, out of a total of 747.41 million broadband subscribers, there were only 22.29 million fixed-line broadband subscribers and in terms of penetration, only 8.93 per 100 households have subscribed to fixed-line broadband services. While the wireless broadband subscribers have grown exponentially from 120 million to 725 million, the fixed-line broadband subscribers have grown slowly from 16.5 million to 22.3 million only. This paper tries to provide solutions to the issues, both supply-side and demand-side, that is preventing the proliferation of fixed-line broadband.

Exempting license fee on the revenues earned from the delivery of fixed-line broadband services

While fixed-line can have various benefits, provisioning of fixed-line broadband services is capital and manpower intensive compared to wireless networks. It is also a time-consuming activity and its maintenance is challenging. In order to address this, various stakeholders recommended TRAI to incentivize fixed-line infrastructure creation in the country by exempting license fee on the revenues earned from the delivery of fixed-line broadband services, which is currently at the rate of 8% of the Adjusted Gross Revenue (AGR).

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Questions around license fee exemptions: 

  • Should direct incentives be provided rather than fee exemption? A license fee exemption might benefit service providers who have a large base of existing subscribers more than it benefits service providers who intend to grow and gain new subscribers, which might defeat the purpose of such an exemption. Will it be better to provide direct incentives to the fixed-line service providers for the creation of new infrastructure? And what indisputable metric will be used to provide a direct incentive?
  • Should only broadband services be considered? Many internet services providers don’t just provide internet access using fixed-line but also other services like voice, IPTV, music services, etc. In such cases, should the license fee exemption be limited to the revenue earned from broadband service or on all kind of revenues earned by the service provider, and if it’s the former, how can we address the likelihood of misuse by the licensees through misappropriation of revenues.
  • What should be the duration of exemption? What will be the ideal duration of exemption of license fee? Should it be predefined and if so, what will be a reasonable duration? Or should it be gradually reduced or tapered off with each passing year so as to incentivize early investors?
  • Will there be a misappropriation of revenue? Licensees might declare Internet Leased Line (ILL) delivered through the fixed-line network as fixed-line broadband and claim fee exception. How can such (and any other) misappropriation of revenue be addressed?
  • Will it create a non-level playing field? With the rise in 4G speeds and penetration and the imminent rollout of 5G, a license fee exemption for fixed-line broadband services may create a non-level playing field between the fixed-line and wireless broadband services.
  • Will it actually help? TRAI notes that many ISP licensees have actually not paid the license fee on revenues for almost eight years now and have thus “already availed the intended benefit of exemption of license fee.” But despite this, growth in fixed-line subscribers has not been great. So will such an exemption actually help?

Giving subsidy in the form of Direct Benefit Transfer (DBT) to subscribers of fixed-line broadband

Given that the cost of installing and maintaining fixed-line broadband infrastructure is high, service providers will only invest in infrastructure if there is sufficient demand in a particular area.  To create such demand, TRAI is exploring ways to reduce the price of broadband service for subscribers and one such way is in the form of subsidy in monthly rentals, where the subsidy is delivered as a Direct Benefit Transfer (DBT) to the bank account of the subscriber.

Issues with DBT: 

  • Who should be eligible? Should DBT be given to all subscribers of fixed-line broadband services or to a segment of subscribers? If the latter, what is the segmentation criteria and the identification process? One idea of segmentation is to provide subsidies to those looking for entry-level basic broadband connectivity rather than those who require faster connectivity. Another way of segmentation could be based on residential vs commercial customers. Thinking along the lines of rural vs urban areas is another possibility but some urban areas in India also have poor penetration of fixed-line broadband.
  • What should be the quantum of subsidy? What should be the subsidy amount? Should it be equivalent to the entire cost of the connection or a fixed amount such as ₹200 per month, with the subscriber paying the remaining out of his/her pocket?
  • What should be the duration of the subsidy? How long should such a subsidy be given to the intended subscriber and should this timeline be decided in advance?
  • How should the subsidy be administered? What is the process of administering the scheme to eligible customers? Should it follow the mechanisms used to deliver LPG subsidies or some other way?
  • Will subsidies have any impact? The Universal Service Obligation Fund (USOF) in the past has provided many subsidies to support telecom services in the rural and remote areas, but they did not prove very effective in increasing rural fixed-line telephones penetration. Why will DBT be successful?

Complete list of questions asked in the consultation paper

  1. What should be the approach for incentivizing the proliferation of fixed-line broadband networks? Should it be indirect incentives in the form of exemption of license fee on revenues earned from fixed-line broadband services, or direct incentives based on an indisputable metric?
  2. If indirect incentives in the form of exemption of license fee on revenues earned from fixed-line broadband services are to be considered then should this license fee exemption be limited to broadband revenue alone or it should be on complete revenue earned from services delivered through fixed-line networks?
  3. In the case of converged wireless and fixed-line products or converged services delivered using the fixed-line networks, how to unambiguously arrive at the revenue on which license fee exemption could be claimed by the licensees?
  4. What should be the time period for license fee exemption? Whether this exemption may be gradually reduced or tapered off with each passing year?
  5. Is there a likelihood of misuse by the licensees through misappropriation of revenues due to the proposed exemption of the License Fee on the revenues earned from fixed-line broadband services? If yes, then how to prevent such misuse? From the revenue assurance perspective, what could be the other areas of concern?
  6. How the system to ascertain revenue from fixed-line broadband services needs to be designed to ensure proper verification of operator’s revenue from this stream and secure an effective check on the assessment, collection, and proper allocation and accounting of revenue. Further, what measures are required to be put in place to ensure that revenue earned from the other services is not mixed up with revenues earned from fixed-line broadband services in order to claim higher amount of incentive/exemption.
  7. Is there any indisputable metric possible to provide direct incentive for proliferation of fixed-line broadband networks? What would be that indisputable metric? How to ensure that such direct incentives will not be misused by the licensees?
  8. What are key issues and challenges in getting access to public places and street furniture for installation of small cells? Kindly provide the State/ City wise details.
  9. How to permit use of public places and street furniture for the effective rollout of 5G networks? Kindly suggest a uniform, simple, and efficient process which can be used by States/ Local-Bodies for granting access to public places and street furniture for installing small cells. Kindly justify your comments.
  10. Which all type of channels of communication should be standardized to establish uniform, transparent, and customer-friendly mechanisms for publicizing provisioning of service and registration of demand by Licensees?
  11. Whether proliferation of fixed-line broadband services can be better promoted by providing Direct Benefit Transfer (DBT) to subscribers of fixed-line broadband services? If no, elucidate the reasons.
  12. If answer to Q11 is affirmative, then:
    1. Should DBT scheme be made applicable to all or a particular segment of fixed-line broadband subscribers? Kindly justify your comments.
    2. If you recommend supporting a particular segment of fixed-line broadband subscribers, how to identify such segment of the subscribers?
    3. How to administer this scheme?
    4. What should be the amount of DBT for each connection?
    5. What should be the period of offer within which individuals need to register their demand with the service providers?
    6. What should be the maximum duration of subsidy for each eligible fixed-line broadband connection?

13. Any other related issue.

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