Telecom and Satcom Players at odds over USOF Subsidy

Since the satcom companies, most recently SpaceX, talked about using USOF subsidy for satcom services, satcom companies, and the telcos are once again, in contention.

Satcom, Telecom Players vie for control on USOF Subsidy

India Mobile Congress has become the latest forum where both the telcos and the satcom players have spoken about diving in the Rs. 58,764 crore Universal Service Obligation Fund. Before that, the satcom players have repeatedly cited USOF as a source for possible subsidies.

On the other hand, the telcos don't want a single penny going towards any satcom subsidy. Since its inception in 2003, the USOF has been receiving contributions from telecom companies. As such, the telcos are not too keen on the idea of what is essentially their money being used to empower their direct competition.

Telcos' Claim on USOF Subsidy - From 2G to 4G and Beyond

At IMC 2021, Reliance Jio Chairman Mukesh Ambani had asked the government to apply the USOF subsidy on smartphones for the lowest rung of telecom users. As per TRAI, there are somewhere between 300 and 350 million 2G users in the country. This group of people has long been a target for the telcos; the telcos have tried to bring them in the 4G fold.

However, so far, only Jio has achieved any meaningful conversion, with its JioPhone brand of phones. The JioPhones 1 and 2 were great success stories, as Jio added over 110 million new 4G users since their introduction. However, the latest JioPhone Next has been more of a miss; the price point of Rs. 6,499 is hardly exciting, and there are better alternatives to the rather underwhelming phone. Interestingly, other telcos such as Airtel and Vi have refrained from doing something similar. Unlike Reliance Jio, those two do not have the backing of a multi-billion-dollar conglomerate, that can just shift the liabilities around within the larger organization. Therefore, no other telco can sustain itself while giving

Incidentally, out of the license fees that the telcos pay the DoT, a significant chunk goes towards USOF. Therefore, the telcos claim that since it is technically their money, satcom players should not be allowed to use it. Instead, telcos have said that the government should subsidize 4G feature phones and smartphones. While this will make things interesting for 2G customers, it will almost deplete all of the USOF. An executive at a mobile company gave a conservative estimate. "If the government wants to subsidize all 2G subscribers to move to 4G (assuming there are 100 million feature phone customers and 200 million smartphone customers), it will be a substantial Rs. 35,000 crore," the person added.

Satcom Players' Claim on USOF - Delivering Connectivity Everywhere

Indian Space Association, or ISpA, has been advocating for USOF subsidy for satcom, and for good reason. Satcom services and players have increasingly targeted India as a potentially huge opportunity; the satcom business would rise to an industry worth $1 billion in revenues annually. As such, along with ISpA, OneWeb has advocated for the use of USOF to subsidize satcom. Since initially, the satcom services will be rather expensive, the price point will prohibit satcom players to capture early adopters. Also, Starlink has advocated for using USOF as well, to subsidize its own services. According to early estimates, a Starlink terminal might cost over Rs. 1.5 lakh, which will put most early customers off, hence the calls for using USOF subsidy.

Therefore, subsidizing the satcom services will help the new generation of connectivity to quickly gain a foothold in India. Exactly what telcos don't want.

What's more, the satcom players have argued that the USOF was initially set up to increase connectivity access to rural and remote areas. And since the telcos have no claim over a fund the government set up, they should have equal access to USOF. ISpA has also mirrored the same; it said that given the strength of USOF, the government needs to subsidize satellite connectivity to reach hitherto unconnected regions of the country, which holds a higher priority.

Constant Contention Between Satcom and Telecom

USOF subsidy might end up becoming another bone of contention between the old guard of telcos and the young blood of satcom companies. Recently, the DoT had decided to auction the mmWave spectrum, one more issue over which the two sides have been fighting over.

The view suggests that the government seeks symmetry in policy frameworks for both telcos and satcom operators. However, across the world, the Ka-band spectrum is simply allocated to the satcom players. Therefore, the satcom players, mostly global players, have expected the government to follow the norms. However, this decision has to potential to not go down well. The “auction” corner has been talking about how it would ensure a “level playing field” because everyone will get to auction for the spectrum. However, not all of the satcom operators can compete with telcos in that regard. Starlink and OneWeb can, and will, but apart from those two, no one else can invest the kind of money required in the spectrum.

The government did, in essence, sort the mmWave issue out. Only time will tell how it deals with this.