The Centre’s short-term view of telecom as a cash cow will damage its own initiatives such as Digital India and Smart Cities
With the Supreme Court declining to grant an interim stay on the Telecom Regulatory Authority of India’s order levying a penalty on call drops on mobile telephony providers, yet another strain has been put on telecom operators’ financials, at least in the short term. While the apex court has decided to hear an appeal against TRAI’s fiat, the penalty of ₹1 per dropped call — nearly thrice the average revenue per minute the sector earns from voice calls — is estimated by analysts to impact their bottomlines by around 7 to 8 per cent in the coming fiscal. This raises a big question mark over the upcoming spectrum auction, the success of which is as important for the Centre’s finances as it is for telecom operators.
The sector was hoping that the Budget would provide incentives to the telecommunications industry for the creation of basic broadband infrastructure. While the incentives have been restricted to hardware manufacturing in India, the Budget plans to collect a record ₹99,000 crore from telecom operators in 2016-17 in the form of spectrum charges and licence fees. This is almost double the revised estimates for the current financial year at ₹56,034 crore. Further, the right to use the spectrum as well as subsequent spectrum trades are to be treated as a service and charged service tax. All this creates additional pressure on telecom companies which are already reeling under a cumulative debt of over ₹2.5 lakh crore. Key performance metrics such as average revenue per user for voice telephony and average realisation rate per megabit of data services have been on the decline. In addition, heightened competition in the marketplace is putting operators under pricing pressure. It was therefore critical that the Budget provided support at the infrastructure and policy level to realise these dreams. The industry had hoped for a simplified tax regime that included clarity on critical tax issues troubling the telecom sector.
It is unfortunate, therefore, that the Budget has once again disregarded the debt-laden telecom sector’s demands for rationalising the tax structure. Instead, the Finance Ministry has taken a myopic view on spectrum sales to try and squeeze out as much as the market can bear. The next auction, which is slated to cover the entire range of spectrum, may see mixed results. This could boomerang on the Centre. Given the acute shortage of spectrum, particularly as data volumes soar, and the fact that many operators face specific spectrum gaps, there is likely to be a bidding war for some frequency bands; others, like the 700 Mhz band, where the reserve price has been set 25 per cent higher than what brokerage firm Credit Suisse estimates the sector’s willing to pay, may go a begging. This will hit the Budget’s revenue projections and have implications for the fisc. The reality is that India is currently ranked 142nd in terms of Internet penetration, way below even countries like Bhutan and Sri Lanka. If India has to catch up with the rest of the world, then the Centre must encourage investments in the creation of broadband infrastructure.
(This article was published on March 6, 2016)
