The union budget and other government announcements around the same time have confirmed active policy support for the telecom sector, which should help it regain lost momentum. These initiatives follow up on policy reforms and rationalisations in 2021, which helped give financial relief and breathing space to the cash-strapped sector.
Overall, this seems to be a progressive and pro-growth budget, at least as far as the telecom sector is concerned. Although stakeholders were hoping for rationalisations in GST for appliances and electronics, which did not come through, there were positives in many telecom-related areas.
There has been a significant increase in the allocation of budgetary support to the telecom sector, for instance. In addition, the government has reiterated its commitment to rolling out 5G as fast as possible, enhancing broadband services in rural areas, and boosting local manufacturing of 5G devices under the productivity-linked incentive (PLI) scheme.
There is an apparent effort to turn around the ailing PSU, Bharat Sanchar Nigam (BSNL), which has received more than half of the total allocation of Rs 845.9 billion to the Department of Telecommunications (DoT). The allocation to BSNL has tripled year on year, to Rs 447 billion, which will be spent on 4G spectrum, technology upgrades and restructuring-related HR expenses. Apart from this allocation, BSNL has been allocated an extra Rs 68.5 billion for GST and VRS-related payments.
There is a commitment to quickly holding 5G spectrum auctions with a deadline to roll out 5G services in fiscal 2022-23. The government has also set relatively modest targets for revenues, which implies the reserve prices for 5G spectrum will not be unrealistically high. The auction is expected in the early part of this fiscal year, and private operators claim their networks will be ready and set up to deliver 5G services to multiple cities very quickly once spectrum is allocated.
The budget estimates indicate that the government expects Rs 528 billion in non-tax revenue in 2022-23 from the telecom sector, in contrast to the Rs 719.6 billion that the revised budget 2021-22 estimates say will be earned in the current fiscal year. (The original February 2021 budget estimates set Rs 539.8 billion as the likely earnings from telecom.)
The higher revenues in 2021-22 were due to advance payments by Reliance Jio and Bharti Airtel, and some revenues were from the March 2021 spectrum sale. Jio paid Rs 415 billion, clearing all dues towards spectrum bought before March 2021. Airtel made a Rs 155 billion advance payment to clear dues relating to spectrum bought in 2014.
The 2022-23 estimate of Rs 528 billion is lower by about 27 per cent than the revised estimates of 2021-22, and it is lower even compared to the original 2021 estimates. Since 5G spectrum auctions are expected in March-April, this implies that only modest upfront payments are expected from that auction, in addition to the usual statutory payments for spectrum usage charges and licence fees.
The timeline for 5G roll-out appears realistic as well. The Telecom Regulatory Authority of India (TRAI) is in the final stages of consultation with the industry on a 5G roll-out, according to a statement by Ashwini Vaishnaw, minister for railways, communications, electronics and information technology. The minister says the auction process will be completed by July-August. TRAI has started the process of setting base prices of nine new spectrum bands, plus the mid-band airwaves earmarked for 5G services for the upcoming spectrum sale. This includes the 600 MHz band and the coveted millimetre wave band.
Given the creation of 5G test beds and extensive trials over the past few years, everything is set to start working immediately upon release of spectrum. Research has been carried out at the IITs and institutions such as the Indian Institute of Science, Bengaluru; the Society for Applied Microwave Electronics Engineering & Research and the Centre of Excellence in Wireless Technology, with DoT allocating Rs 2.2 billion to R&D. DoT claims the test beds have validated and developed 5G user equipment and network equipment, and enabled the development of 5G products, services and use cases by indigenous startups, SMEs, academia and the industry. DoT allocated spectrum to Bharti Airtel, Reliance Jio, Vodafone Idea (Vi) and Mahanagar Telephone Nigam Limited for 5G trials, alongside manufacturers such as Ericsson, Nokia, Samsung and Mavenir, who also participated.
The private sector service providers – Bharti Airtel, Reliance Jio and Vi – have established 5G trial sites in Gurugram, Bengaluru, Kolkata, Mumbai, Chandigarh, Delhi, Jamnagar, Ahmedabad, Chennai, Hyderabad, Lucknow, Pune and Gandhinagar. They claim their networks are 5G ready, which should enable very fast 5G roll-outs in these cities once spectrum is allocated. This will enable India to catch up with the many countries where 5G is already commercially available. Given the wide application of 5G technologies, it could drive unprecedented growth in telecom-dependent services.
Side by side with 5G, there is a focus on rural broadband fibre roll-out. The finance minister said that 5 per cent of the Universal Service Obligation (USO) Fund would be allocated for R&D, commercialisation of new technologies and ensuring connectivity to rural areas. She announced plans to boost fibre penetration on BharatNet.
Telcos contribute 5 per cent of the adjusted gross revenue (AGR) towards the USO Fund, and the corpus is now around Rs 590 billion, indicating that BharatNet would receive at least Rs 295 billion for fiberisation and related activities. Since this roll-out would be done on a public-private partnership basis, as per the finance minister, it would also provide an investment opportunity to telecom players and has been welcomed by equipment makers and solution providers. There was hope that the USO Fund would be removed in 2022-23 since the corpus is fairly large. But if the USO Fund is being deployed productively, it is a positive signal for the future.
Apart from this, the allocation of Rs 142 billion for telecom infrastructure targets completion of the optic fibre cable-based (OFC) network for the defence services (with an allocation of Rs 52 billion), the rolling out of broadband in 220,000 panchayats, and improvement of mobile connectivity to the Northeast. Overall, the government has approved Rs 246.6 billion for an advanced communications network for the defence services in lieu of their vacating mobile spectrum in May 2018. This shift was to be completed within 24 months but was unavoidably delayed. The latest allocation will help put it back on track.
The other Rs 900 billion is allocated for boosting connectivity and includes high speed OFC or satellite broadband services to the panchayats. The target is to lay 670,000 km of OFC, and set up 120,000 Wi-Fi access points and 650,000 fibre-to-the-home connections. There is also a provision for installing 1,200 mobile towers for 4G services in Arunachal Pradesh, Meghalaya and Assam. In addition, the Andaman & Nicobar Islands, which were connected with OFC in August 2021, will get 124 mobile towers for 4G service, while left wing extremism-affected areas will get 1,000 mobile towers, aspirational districts will get 350 mobile towers, and 354 villages will be covered in Ladakh, Jammu & Kashmir and border areas.
Digital India initiative receives a boost
The inclusion of 5G in the PLI scheme is in line with the Make in India and Aatmanirbhar Bharat initiatives. This will help improve the uptake of smartphones and other smart devices, alongside generating employment. The calibration in customs duties for “wearable and hearable” devices will also boost demand. Duty concessions on phone parts, chargers, transformers, wearables, and more will promote domestic manufacturing of such items.
In 2021, the government had signalled support to the telecom sector when it rationalised the definition of AGR and offered a moratorium on dues for four years, along with an option to convert debt into equity. While Airtel did not avail of this latter option, Vi did, and as a result, the government is now the single largest shareholder in Vi, with a stake of 35-36 per cent. It remains to be seen whether this will help Vi come out of the woods, but it does give it some breathing space. The government’s equity stake may also mean more committed policy support in the future for service providers.
Going into the budget, the telecom industry was hoping for some or all of the following policy changes:
- A reduction in licence fees
- Duty exemptions on key telecom equipment
- Refunds of input tax credit against GST paid on telecom towers
- Higher depreciation rates on equipment such as batteries
- Reduction in GST rates to reduce the financial burden on passive infrastructure providers
- Incentive schemes promoting domestic manufacturing
- A stimulus package for the penetration and proliferation of connectivity in rural areas
- Smooth reforms for 5G roll-outs.
A review of the budget suggests partial satisfaction of this wishlist. The 5G thrust is definitely there and so is the rural stimulus. The PLI inclusions and cuts in duties on telecom parts, etc. will drive manufacturing. But tax breaks have not been granted, which means that the industry is still looking at a burden of Rs 350 billion-Rs 500 billion in terms of GST paid, which cannot be utilised as credit. Nor have rates been reduced for licence fees or GST.
That said, it is still a progressive budget, which should lead to sustainable growth and put the industry on a more secure financial footing. Given the strong positive externalities of the telecom industry as well as its own internal employment generation capacity, this will foster growth across the economy.
Devangshu Datta