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Tax issues, row over auctions keep telecom companies on tenterhooks

Wednesday, 25 December 2013 - 9:13am IST | Place: New Delhi | Agency: DNA

The bell of uncertainty rang albeit lower for the beleaguered telecom sector moving towards a recovery path in 2013.

The decision to lower the reserve price for 2G spectrum auction, relaxation in mergers acquisition norms and allowing 100% Foreign Direct Investment ((FDI) were attempts to pull out the once sunrise industry from the gloom.

The second round of 2G spectrum auction of March was a dismal failure as with participation from just one bid from a single player due to high reserve price of the airwaves.

Russia’s Sistema Shyam Teleservices (SSTL) which runs its telecom services across the country under the brand name MTS bought spectrum in eight circles for around Rs.3,639 crore --which was at the base price.

The government’s target of Rs 40,000 crore from auctions remained a distant dream with such a meagre amount being realized from the second round of auction. This was regarded to be the shortest online sale of airwaves in terms of time consumed.

It was in contrast with the 3G spectrum auction in 2010 which ended after 34 days and had 184 rounds of bidding followed by 16-day long BWA spectrum auction.

The first 2G auction took place in November when the government bagged Rs 9,407 crore.

This was followed up by another whip to the industry—this time specially to the incumbents when the telecom department denied their request for extension of licences in different circles that were coming up for renewal in 2014.

Department of Telecom (DoT) said under the new policy on spectrum allocation, airwaves have been de-linked from licence therefore the companies must participate in the auctions to get airwaves at market price.

A ray of hope came in when the government in August permitted 100% Foreign Direct Investment (FDI) in the sector.

The idea behind increasing the FDI cap was to help the industry get an alternate source of funds to ease their financial burden. Earlier FDI cap was 74%.

The move brought relief for foreign partners as they were now free to own the business.

In 2012, there were disputes among foreign investors with their Indian partners in firms such as Uninor.

The year also saw operators reducing discounts or offering free vouchers on tariff recharges. Top players such as Bharti Airtel, Vodafone and Idea Cellular hiked call charges by withdrawing promotional offers.

The sector saw hope when the Telecom Regulatory Authority of India (Trai) recommended a sharp cut of about 60% in the spectrum reserve price for the next 2G auction (for 900 MHz and 1800 MHz) spectrum auctions.

The reserve price for spectrum in the 900 MHz band in a few key areas according to Trai was to be reduced by 60%. Further, it had suggested a 37% cut in the reserve price for the 1800 MHz band.

In doing so, Trai paved the way for revival of investment and growth in the telecom sector. Telecom operators for long have resented the spectrum auctions for what they thought was at an unreasonably high base price.

This recommendation was finally accepted by the government in December, a month that also saw some big deals happening in the sector. Bharti Airtel and Reliance Jio Infocomm announced a comprehensive telecom infrastructure sharing arrangement. Also, the Delhi High Court removed freeze on Nokia India’s Chennai asset in view of its $7.2 billion global deal with Microsoft. The handset maker was served with a tax demand of about Rs.2880 crore in March for five financial years starting from 2006-07.

Clarity on the much-needed mergers and acquisitions (M&A) policy in the 12-player industry towards the end of the year also proved relief for the sector as a whole.

The empowered group of ministers ( EGoM) on telecom, cleared the M&A policy for the telecom sector raising the market dominance criterion to 50 percent of the market share in terms of subscriber price.

The government is yet to meet the granularity of the policy. Currently the industry looks forward to a better regulatory clarity apart from ensuring a better investor sentiment. The sector has a long way to go.

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