Union Budget 2013-14: Wish list to revive telecom sector

The sector needs to be provided with a package which can facilitate the spread of access to the remotest corner of the country

The Telecom Sector has faced ups and downs since the liberalization process started in the mid 1990s. NTP (National Telecom Policy) 1994 did not bring the desired results. The auction process was used to determine license fees in a duopoly regime leading to a high cost regime which did not result in affordability and spread of network. New Telecom Policy (NTP 1999) addressed these issues to a certain extent leading to an era of high growth resulting from enhanced competition and affordability.

However, certain subsequent events caused a turmoil in the sector, which had hitherto been touted as the showpiece of reforms. Now the sector needs to be provided with a package which can facilitate the spread of access to the remotest corner of the country. For doing so the Budget for 2013-14 needs to provide certain palliatives as under:

(I)The Telecom Sector in India is burdened with a very high cost regime of fees and taxes, perhaps one of the highest in the world. These are:

(a) License fee on an average Eight per cent of the Aggregate Gross Revenue (where revenues include all earnings, including non-operational earnings)

(b)Spectrum usage charges on an ascending scale where the fees increase with the increase in spectrum used; in addition there are charges for micro wave usage

(c)Service Tax of 12.33 per cent

(d)Earlier there was an entry fee for getting a license; now spectrum is auctioned adding to the costs; and it is also proposed to charge a one time entry fee for spectrum beyond start up spectrum.

All these would bring the total impact close to 28 per cent as compared to around five per cent% in many of the Asian Economies. In fact in most countries where spectrum is auctioned, other fees are related to cost of administration which is nominal. Therefore, there is a case to reduce the impact of fees and taxes so that the impact is close to the Asian levels. For instance, if spectrum is auctioned in adequate chunks which optimize network planning, there would be no need for a subsequent onetime fee and usage charges as well as license fees (apart from USO Levy at five per cent of the license fee, which could also be progressively reduced as coverage becomes increasingly Universal).

The impact of all fees should be brought down drastically so that affordability is ensured and the telecom operators get more volumes so as to compensate for a low margin arising out of low tariffs. Bad debts should be exclude from service tax. As it is, most of the operators have heavy debts in their balance sheets which does not reflect well on their health.

(II) Declare the entire Telecom sector as a Infrastructure Sector, including the Telecom infrastructure service providers enabling it to avail all the facilities associated with it.

(III) Cenvat credit should be available for Towers/Tower parts including the radio and other components since they are used purely for providing telecom services (and not get converged as immovable property)

(IV) Remove SAD (Special additional duty) since telecom service providers are not manufacturers and do not get credit of SAD paid.(V) Since Government wants to provide Universal Broadband services there is need to have zero import duty for Optical Fiber Cables.

(VI) To give encouragement to the domestic ICT industry excise duty should be removed for such items, particularly since under ITA we are bound to have zero import duty for IT items.

(VII) Telecom sector popularly is guided by the rule of Four, whereby the optimum level of operators in a licensed area is four. Anything less is not conducive to competition; anything more generally leads to chaos. Therefore there should be a soft regime for acquisitions and mergers so as to encourage consolidation.

(VIII) The regulatory regime should allow for mortgaging spectrum for obtaining more funds for investing in the network, particularly for accelerating growth of 3G , LTE and 4G network services.

 The story was first publsihed on ciol.com.