As noted in Section 3.2.2, operator levies typically range from less than 1 per cent of operator revenues in South Africa to 5 per cent in India and Colombia and 6 per cent on certain qualifying revenues in Malaysia.
How is the level of Universal Access and Service Fund (UASF) contribution established?
There are two ways to estimate what is an appropriate funding level for each country. These are as follows:
- Policy-driven approach – Determine what scale of subsidy programme would be required to meet the country’s policy objectives and time-bound universal access and service (US) targets. The total cost and subsidy estimates are compared to the total sector revenues. The percentage of total sector gross or net revenues calculated by this method becomes the high level estimate; or
- Market-driven approach – Determine from a survey or assessment of operator and other stakeholder opinions, as well as from international benchmarks, what operators would accept or could afford as a reasonable contribution. Then develop the UASF programme to match this.
For many reasons, a hybrid iterative use of these methods is recommended. The main reasons for this are:
- Levies based on a policy-driven approach may be a political wish list and too costly which is not rooted in the reality of what can be achieved, or should be attempted, in a given time frame;
- The policy-driven approach subsidy programme could also require a larger than practical bureaucracy, in the form of UASF staff and programme management, than is realistic or sustainable by the industry in a liberalized market; and
- In some cases, the initial estimate of programme cost quickly becomes out of date due to the sector’s rapid development (i.e., its expansion growth which in turn reduces the need for intervention and its financial growth which provides more finance than thought to the UASF), resulting in far less UASF subsidy requirement than first thought, and consequently less operator levy.
International experience indicates that no developing countries appear to have been able to disburse more than 2 per cent of sector revenues in their UASF programme. As discussed in Section 3.2.4, in the major countries that levied 5 or 6 per cent, despite having established sophisticated UASF organizations, less than half of the amount collected has been allocated back to the sector in subsidies.
Matching programme cost (maximum subsidy) with the available resources
Universal access and service (UAS) strategists must match the size of programme to the amount available annually in the UASF. In some cases, government or an international donor seeds the fund in the early years to assist with programme start-up.
The following diagrams show the expected expenditures on the UAS programme initiated in Russia in 2004/5 compared with the options available for resources from operator levies. Three alternative percentage levy rates were based on a projection of market size over the planning years in question.
The analysis indicated that Russia’s fund would need to levy 0.5 – 1.0 per cent of annual revenues from the operators in the sector to meet the goals of the UAS programme. This analysis indicated that the goals and targets for telephony and Internet/ICT roll-out were realistic both in the context of total expenditure and expected balance in the early years and could realistically be scaled back to a lower level of collection after the third year.
Source: Intelecon analysis
Changing requirements over time
Some existing UASFs have already seen an unexpected rapid increase in financial resources during the recent period of unprecedented market growth. As noted previously in this section, some have built up resources well in excess of their capacity to organize competitions and allocate subsidies. They may even be beyond all reasonable levels of investment requirement. Thus it is important for UASF statutes to provide for evaluation, re-assessment of the levy required and (by implication) reduction of levies over time to ensure that the supply of financial resources does not run ahead of needs and capacity. This is covered in Section 5.3.7.
Should levies be from gross or net revenues?
Arguments in favour of collecting levies based on net or after-tax revenues, or at least based on revenue minus required interconnection payments to other operators, are as follows:
- Avoids potential objections to what some operators would consider to be double taxation; and
- Avoids the appearance of imposing a heavy burden on new entrants, who are often taxed more heavily than early-entry operators who often have received a tax holiday. New entrants also typically face a heavier net interconnection outflow (as a percentage of total revenues) than well-established operators.
The pre-tax versus after-tax argument depends to a great extent on each country’s tax regime, and whether UASF levies are classed or allowable as tax-deductible and whether subsidy receipts are also taxable in the period they are received. In general, UASF levies should be tax deductible as they represent a real cost, and subsidies received should not be taxed, as that is counter-productive to making finance available for the implementation of governments UAS policy.
For the sake of simplicity and ease (low cost) of administration, levies are best calculated on gross revenues from telecommunications services, excluding certain items easily identified (e.g., equipment terminal sales, real estate or investment income) and value added taxes. However, some funds calculate their contributions on various formulations of net revenues, qualifying revenues, weighted revenues from various services, etc. . The main objective should be to achieve the greatest transparency and efficiency in the levying process.
As discussed in detail in Section 5.3.8, the level of contribution should be re-evaluated and adjusted from time to time, as UAS objectives are met or as targets are changed or the growth and revenues available in the sector change over time. The evaluation process, which includes determining levels of contribution, should be enshrined as a periodic activity under the policy in order to reflect both the achievements and performance of the UASF strategy as well as stakeholder interests.
- Malaysia’s Universal Service Provision Fund (USPF) levies 6 per cent of operator “weighted net revenues”, which includes the following services: international calls; call termination service for foreign service providers, freephone service, ISDN, cellular mobile, international roaming, IP telephony, leased lines, other activities subject to an individual or class license. The levy secures approximately 2 per cent of the sector’s total gross turnover. However it appears to be much higher than this on mobile operators.