Telecom Sector Faces Existential Challenge

Telecom sector has rarely been mentioned in any of the past Budgets but it is one sector that now needs urgent fiscal respite. Telecom companies are under a huge debt burden of over Rs. 4-lakh crore and is facing additional demands of nearly Rs. 1-lakh crore from the Department of Telecom (DoT) in the form of dues on Adjusted Gross Revenue (AGR). This comes even as two of the three surviving mobile operators have reported massive losses in the last quarter raising doubts of their survival.

“The principal expectations we have are a possible reduction in license fee and spectrum usage charges, set up a special financing vehicle for telecom, and reduce GST, among others,” Rajan S Mathews, Director-General of Cellular Operators Association of India (COAI), said.

Telecom operators pay nearly 30 percent of overall revenues to the Centre in the form of levies and taxes. Though the operators have been demanding a reduction, the Finance Ministry has not obliged so far. Industry analysts said that if the Centre does not offer any relief this time, the future of the telecom sector could be at risk.

“The Centre must step-in immediately to find a solution. Otherwise the digital revolution unleashed across the country could come to a grinding halt. The long-standing demand of bringing down levies and taxes on telecom companies should be acted upon,” said an industry executive.

According to Deloitte, the Finance Minister could also offer investment incentives, either by way of accelerated depreciation or through additional allowance for capital investments, to attract foreign telecom gear manufacturing companies to set up their manufacturing facilities in India. This will support the government’s initiative for job creation and boost small and medium enterprises in the sector.

“Provide incentive plans and relaxation from tax/regulatory fee for initial years on 5G acquisition to ease the pain of financial outgo in post-5G scenario. Relook at spectrum charges and other levies that the telecom companies face and potentially offer one-time amnesty schemes for past dues,” said analysts at Deloitte India.

India’s telecom sector has been perennially under crisis for the last two decades. Regulatory blunders, flawed policy-making influenced by corporate lobby groups and unethical tactics by the telecom companies with a myopic view have ensured that 25 years after the first mobile call was made, the sector is in complete disarray.

The telecom sector has proven to be the graveyard for over 20 companies over the last two decades. Going by the current financial stress, the death count could be higher if immediate steps are not taken to rectify past mistakes. There are only three private telecom operators left in the fray and without any fiscal relief, India’s telecom sector could be heading towards a duopoly. This could be bad news for customers as the surviving operators will increase tariffs without any competitive checks in place.―The Hindu Business Line