Saturday 2 March 2013

Union Budget 2013-14: Impact on Telecom sector



R.Jayaprakash
Telecom sector has a very vital role in any economy. The sector contributes 3% to the India’s Gross Domestic Products (GDP)[1]. It is the major contributor of non-tax revenue as per the revenue projection for the year 2013-14. Out of the total projected non-tax revenue of ` 164613.6 crore, the contribution of telecom is ` 58217.33 crore which is 35.37%[2] of the total non-tax revenue. The National Telecom Policy-2012 is designed to ensure that India plays a leadership role effectively and transforms the socio-economic scenario through accelerated equitable and inclusive economic growth by laying special emphasis on providing affordable and quality telecommunication services in rural and remote areas. The NTP 2012 has an ambitious  list of 36 objectives which starts with provision of secure, affordable and high quality telecommunication services to all citizens and ends with putting in place a web based, real time e- governance solution to support online submission of applications including processing issuance of licences and clearances from DoT.

The performance of the telecom sector during  2011-12 was dull, troubled with falling revenue, escalating costs, litigations, increased cash out flow, uncertain policies and retrospective changes. The services like 3G, WiMAX and 4G LTE could not make any headway  during 2012-13. The cancellation of 122 2G licences and the increasing debts of telecom service providers have shaken the confidence of foreign investors in India. There was 96% drop in Foreign Direct Investment (FDI) during last year. Many operators (Etisalat, Baharin Communications Ltd, Sistema (MTS))  bid adieu from the Indian market. Uninor closed their shops in many Cicles. The Government could not generate the anticipated revenue from the auction of 2G spectrum. Many operators including BSNL and MTNL stayed away from the deal.

The revenue forecasts for 2013-14 from telecom sector  mainly relate to the licence fees from telecom operators, receipts on account of spectrum usage charges and auction of Broadband Wireless Access (BWA) spectrum currently in use by Central PSUs; receipts from spectrum held in excess of 6.2 MHz and receipts from auction of spectrum available with Government including spectrum to be vacated by 122 licences, in view of the order of Hon'ble Supreme Court.

The budget proposals could not impress the telecom sector as evident from the initial reactions. The Cellular Operators Association of India (COAI) stated that the telecom sector was deeply disappointed as none of the critical issues relating to the sector have been addressed. The telecom sector expected some incentives like ‘Infrastructure status’, tax reductions, spectrum mortgaging, implementation of GST, Cenvat credit for Cell sites, Diesel subsidies, Special Economic Zones (SEZ) for manufacturers, tax holidays for Infrastructure providers etc, but none of these materialized.

There are no special proposals in the Union Budget 203-14 for telecom sector. The proposals which impact telecom sector are:

Telecom Wish-list 2013
1.       Reduce the licence fee, spectrum charges, usage charges
2.       Exclude Bad debts from ST
3.       Declare Telecom sector as a Infrastructure Sector u/s 10 (23G).
4.       Cenvat credit for Towers/Tower parts including the radio and other components
5.       Remove SAD (Special Additional Duty) since telecom service providers are not manufacturers and do not get credit of SAD paid.
6.       Zero import duty for Optical Fiber Cables
7.       Encouragement to the domestic ICT industry. Excise duty should be removed.
8.       A soft regime for acquisitions and mergers so as to encourage consolidation.
9.       Mortgaging spectrum for obtaining more funds for investing in the network, particularly for accelerating growth of 3G , LTE and 4G network services.
10.    Special Economic Zone fir manufacturing
11.    Diesel subsidies for at least those geographies where power supply is not adequate to run the cell towers
12.    Excise Duty exemption should be granted for supply in rural areas of the telecom industry\
13.    Tax rebates should be given to broadband services, which would lower cost to the end-consumer and would increase broadband penetration manifold
14.    Tax holidays for Telecom infrastructure companies providing towers, duct, dark' fiber
15.    Subsidies for incorporating green technologies and reduce carbon footprint
16.    Implementation of GST 

1.      Excise Duty :The proposal to enhance the Excise Duty of mobile handsets priced above ` 2000 from the existing 1% to 6% will make mid-range and hig-range phones expensive. As per the Finance Minister, P Chidambaram, "About 70 percent of imported mobile phones and about 60 percent of domestically manufactured mobile phones are priced at ` 2000 or below”. The increase in ED may have some impact on 3G and 4G services since these are available only in the smart phones.

2.      Import Duty: The import of plant and machinery for the semiconductor industry will attract ‘zero’ duty.  This is an incentive for manufacturers of semi-conductor devices which are extensively used in telecom.

3.      Investment Allowance: The Finance Bill 2013-14 proposes an investment allowance at the rate of 15 per cent to a manufacturing company that invests more than Rs.100 crore in plant and machinery during the period 1.4.2013-31.3.2015. This will be in addition to the current rates of depreciation.

4.      Additional Depreciation: The proposal on introduction of a new incentive in the form of additional depreciation for telecom equipment/ handset manufacturing companies, where investment in new plant and machinery exceeds Rs. 100 crores will benefit telecom companies also.

5.      Infrastructure Debt Funds (IDF): The  budget announcement on encouraging Infrastructure Debt Fund will help tower companies to raise resources, since tower companies have been given ‘infrastructure’ status last year. These tower companies can raise funds through take-out finance, credit enhancement and other innovative means, provide long-term low-cost debt for their new projects. India Infrastructure Finance Corporation Ltd (IIFCL), in partnership with the Asian Development Bank, will offer credit enhancement to infrastructure companies that wish to access the bond market to tap long term funds.

6.      Financing renewable energy projects: The budget proposes provision of low cost finance from the National Clean Energy Fund (NCEF) to IREDA to on-lend to viable renewable energy projects. Around 25% of the OPEX of telecom companies is on electricity/diesel cost and  necessity of going ‘green’ has been accepted by the telecom sector[3]. In January 2012, TRAI issued recommendations on ‘Green technologies’ by tower companies and service providers.
The department of telecom is moving fast making provisions for non-conventional energy, solar & wind power in both remote off grid sites as well as grid site. The low cost financing will help the telecom companies to introduce renewable energy sources to meet its demands and reduce dependency on conventional energy sources.

There are no sector specific announcements for telecom sector in the budget 2013-14, except the one on enhancement of ED for mobile handsets costing above ` 2000.
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