The high expectations that the telecom industry had from the pre-election budget soon faded with Finance Minister P. Chidambaram not offering any major concessions. As his budget presentation drew to a close, it became clear that the focus was on populist measures, not on high-growth segments.
With its “wish-list” largely unmet, the telecom industry is, understandably, disappointed. Says T.V. Ramachandran, director-general, Cellular Operators Association of India (COAI): “We are disappointed with the budget as there is nothing in it for the telecom sector. The finance minister had announced last year that there would be rationalisation of the tax structure. There is no action on that even after a year. Our other demand, relating to cenvat, has also not been addressed.”
Multiple tax levies have long been a sore point for the industry. Operators and industry associations have sent representations against it each year, pointing out that tariffs could be reduced considerably if taxes were rationalised or brought under one single levy. But this year too, the issue has remained unaddressed. “The minister has not rewarded the sector for achieving phenomenal growth and the government continues to heavily tax the sector,” says S.C. Khanna, secretary-general, Association of Unified Telecom Service Providers of India (AUSPI).
Operators believe that telecom, a key driver of the country’s economic health, needs concessions and benefits to steer it on the growth path. Their hopes for a favourable budget were probably also bolstered by A. Raja, minister for communications and IT, who had stated before the budget, “The government is committed to providing communication facilities to consumers at affordable costs and the prime minister too has acknowledged the importance of IT and telecom in the nation’s growth.”
But it is not that there is nothing in the budget for the sector. The positives that the operators got are continued support from the government for increasing internet and broadband usage and the abolishment of excise duty on wireless data modem cards. The price of data cards, currently about Rs 2,800, is expected to come down by 16 per cent. There is also a reduction in the customs duty on imported data cards, from 21 per cent to 4 per cent.
Wireless data cards enable consumers to access the internet without having to take a telephone connection. The cards can be used for both laptops and desktop PCs. When third-generation (3G) services are launched by mobile operators, the demand for wireless data cards is expected to go up substantially. Currently, 4 million data cards are used in India. The cards are sold by all the major telecom operators including Tata Teleservices, Reliance Communications and Bharti Airtel.
At the macro level, the budget has increased the Universal Service Obligation Fund outlay for rural telephony rollout, from Rs 14.5 billion for 2007-08 to Rs 20 billion for 2008-09. Meanwhile, the government’s collection from licence fee and others levies has gone up significantly in 2007-08 to Rs 215.33 billion, more than double the estimate of Rs 99.02 billion in the previous budget. The increase is due to collection from new players.
The budget announced the setting up of 100,000 rural broadband kiosks at a cost of Rs 750 million. The allocations for statewide area networks (SWANs) and state data centres are Rs 4.75 billion and Rs 2.75 billion respectively. Analysts and industry players believe that these steps will benefit the sector. Says Sourabh Kaushal, industry manager, Frost & Sullivan: “This is of direct benefit to the telecom sector. Looking at the potential, this is minuscule, but it is definitely a move in the right direction.”
The focus on rural areas is a positive for telecom operators with infrastructure in these areas. According to Manoj Kohli, chief executive officer (CEO) and president of Bharti Airtel, “The focus of the union budget on rural India is a positive one for the telecom sector. It complements Bharti Airtel’s thrust on rural telecom penetration, as we are already present in over 320,000 villages. Our rapid rollout in thousands of more vilMultiple tax levies have long been a sore point for the industry, which contends that tariffs could be reduced considerably if taxes were rationalised or brought under one single levy. But this year too, the issue has remained unaddressed. lages in the coming year will get faster response due to the government’s new policy. Besides, the increased outlay of Rs 4.75 billion for SWAN projects will help achieve greater penetration and will provide benefits of connectivity to smaller towns and villages. This is also aligned with our rural focus.”
The budgetary provisions for setting up data centres and 100,000 broadbandenabled common service centres in the rural areas will also benefit bandwidth providers such as Sify, Tulip IT and Tata Communications. As the government sets up these centres through telecom companies and vendors, it should lead to bigger interest in terms of infrastructure management services, points out Jagdish Mitra, CEO of CanvasM, a joint venture firm promoted by Tech Mahindra and Motorola.
Next-generation convergence services such as internet protocol TV (IPTV), mobile TV and IP-based telephony will now be cheaper as customs duty on convergence products has been reduced from 10 per cent to 5 per cent. Operators like Mahanagar Telephone Nigam Limited and Bharat Sanchar Nigam Limited, which offer IPTV services, will benefit from this move. The abolishing of duty (currently 7.5 per cent) on specific parts of set-top boxes is also expected to make cable-based broadband services, provided by companies such as Hathway, cheaper.
However, aside from these concessions, operators feel their interests have not been kept in mind. The budget has imposed a 1 per cent national calamity contingent duty on mobile handsets, which will hike handset prices. However, the Indian Cellular Association (ICA), the apex body representing handset companies, is not overly worried. According to a statement released by the ICA, the 1 per cent levy should not impact handset sales though “symbolically”, it is not a progressive move as it impacts the end-user.
Considering its allocations for all segments of the economy, the 2008 budget has been appreciated by most people for being a populist budget with the right emphasis on creating social infrastructure. However, it is doubtful whether members of the telecom industry share the same opinion.
