Calling for a triple treat

The next financial year is expected to be more eventful, in a positive way, than the one about to end.  3G (third generation) spectrum auction, introduction of mobile number portability, new guidelines for 2G (second generation) telecom services, an effective end to the pesky telemarketing calls and messages — all this should have come by now, but is slated for the next fiscal. That would also mean significant expenditure by the telecom industry in the coming fiscal.

At a time when the telecom sector is planning big investments, it is looking forward to rationalisation of taxes in the Union Budget.

Take for instance, the case of 3G spectrum. While the department of telecommunications (DoT) had earlier planned to auction 3G spectrum in January 2009, it was deferred to January 2010 and then to February 2010.

Time and again, the industry has opposed the auction, though not openly, due to non-availability of funds during economic slowdown.

Recently, the ministry of finance had also stepped in to relax the norms for external commercial borrowing (ECB) to help the telecom companies raise funds for the 3G auction.

But the telecom industry is looking for greater relief from the government, as telcos were forced to reduce phone tariffs to a new low in the face of increasing competition.

For many years, the telecom industry has been kept waiting for the goodies that it demanded from the finance ministry.  Telecom players are hoping the ministry will now resolve their long-pending issues with multiple taxes and levies.

Also, with lofty targets set for rural teledensity and broadband penetration, the government looks focused on the telecom sector at this point.

3G is not the only reason why telcos need a kinder finmin this time
around. Even for additional allocation of 2G spectrum, an auction proposal cannot be ruled out. The telecom regulatory authority (Trai) is expected to come out with its guidelines for 2G services soon, and auction route is a possibility.

Trai may recommend the auction route because the DoT and communications minister A Raja have been under attack for long for allowing telcos to get 2G  spectrum on a first-come-first-serve basis in the recent past.

Opposition parties called it a scam worth Rs 60,000 crore, as start-up spectrum to these telcos was given free along with the licence. The pan-India licence fee for 2G services is Rs 1,650 crore, which is seen as a throwaway price for the valuable resource. An auction of the same would have fetched the national exchequer much greater revenue.

It may be recalled that Prime Minister Manmohan Singh had recently said that spectrum is a scarce resource, and that the government should try to maximise revenue from it, as is the trend worldwide.

Mobile number portability, which will allow phone users to retain their numbers even while shifting to another service provider, is also cost-intensive for service providers. The service is expected to be introduced from April 2010.

An industry insider told DNA Money the industry has invested huge amount of money. “This is the time to take a hard look at the multiple levies,” he said.

As per estimates, the total of all the levies on telecom industry works out to 30% of total revenues. The telecom industry in other developing countries such as Malaysia, Sri Lanka and Pakistan pay less than 7% and in China it is only around 3%.

Phone tariffs, meanwhile, are likely to remain low through the coming year. If communications minister A Raja is to be believed, the local call rate will come down to 10 paise a minute soon.

In such competitive times, targets for the Indian telecom sector are lofty. President Pratibha Singh had recently mentioned that rural telendensity in India must reach 40% over the next five years, up from the current 15%. As for mobile subscriber numbers, India may cross the 700 million mark by the end of calendar 2010 if the current pace of over 15 million monthly addition is maintained.

At last count, India was the second-largest telecom market in terms of subscriber base, after China. As of end December 2009, the total subscriber base stood at 562.21 million, of which, mobile users accounted for 525.15 million. In the month of December, there was a record addition of 19 million mobile subscribers.

To keep this pace going, investment in the telecom sector has to be kept high, and therefore, the government may decide to ease the industry’s burden by rationalising taxes and levies among other things, an analyst said.

Apart from rationalisation of taxes, the other concessions being sought by the industry are reduction in customs duty on imported equipment required for telecommunication services, continuation of basic duty concessions for network infrastructure equipment, and zero import tariff and excise duties for customer premises equipment for broadband service.