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BW Businessworld

Telecom Unwired

Rs 2 lakh crore is the likely cost of connecting the unconnected in years ahead

Photo Credit : Shutterstock

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The Indian telecommunications industry is probably passing through its most disruptive phase,   reeling as it is under a debt burden of Rs 4.5 lakh crore and a declining revenue. It is among the heavily taxed industries. Over the past two decades the telecommunications industry has invested over Rs 9.2 lakh crore, empowering over a billion subscribers.

It provides employment to 2.2 million directly and another 1.8 million indirectly. It contributes 6.5 per cent to India’s gross domestic product, even as it offers one of the cheapest tariffs. Cumulative foreign direct investment  inflows into the sector till March 2016 is estimated to be Rs 92,700 crore.

According to Rajen S. Mathews, director general at Cellular Operators Association of India (COAI), the estimated total levy on the telecom sector ranges from 25 per cent to 29 per cent, which is one of the highest in the world. “China on the other hand has just 11 per cent as the total levy,” says a COAI analysis. The COAI is an industry association of GSM mobile service providers in India.

 “The telecom sector is in dire financial straits with a one per cent return on investments and many operators even making negative returns on their investments. Last fiscal, two of the top three Indian telecom players are estimated to have racked up net losses due to the price war,” says Mathews referring to the entry of Reliance Jio and its aggressive tariff plans including free voice calls and low-price data. The cost of acquiring spectrum in India is expensive.

“The high spectrum cost has contributed to the debt burden and this accompanied with high levies has resulted in immense financial pressure on the sector,” he says.

In March 2016, the central government decided to set up an Inter-Ministerial Group (IMG) to examine the financial woes of the telecom sector.

The COAI and its members believe that it was time telecom, both as a service and infrastructure, was considered as a resource of national importance because the immediate priority for the government is to ensure affordable mobile broadband services for those unconnected.

The estimated cost of rolling out broadband and Internet services for the unconnected is around Rs 2 lakh crore across the next three to five years. “Industry does not have the capacity to invest big money today,” says a telecom analyst. The COAI says there is a need to rationalise the regulatory cost.

 The COAI’s suggestions to the IMG include deferred payments for spectrum, reducing the spectrum usage charge, redefining Adjusted Gross Revenue, allowing tax-free bonds and removal of service tax/GST/reverse charge on spectrum allocation.