The telecom industry hopes that the momentum of reforms will be maintained despite the change of government, the induction of a new minister for communications and the forthcoming budget. Naturally there is bound to be some shift in policy and different segments of industry have divergent views on what needs to be done for healthy growth. tele.net asked several prominent industry stakeholders to list their expectations from the new government and the concerns which they expect the new minister to address...

What is industry’s expectation from the new government?

N. Balaganesh
The new government should take forward information and communication technologies reforms to the next stage such as internet revolution and expedite regulatory reforms for various services. Promoting broadband diffusion and the 3G licensing process are two specific areas that need to be focused on. Moreover, basic telecom service area expansion and internet adoption in the rural areas are two major areas that need to be addressed.

Allowing voice over VPN will be another major step the government should consider as this will liberalise the voice market. We have already submitted our expectation from the new government in the form of pre-budget recommendations to the Department of Telecommunications (DoT) and the finance ministry. There, we have asked for concessions in customs and excise duty for all telecom equipment. The major argument we are posing to the authorities is that we need to keep tariffs at affordable levels in order to push for higher levels of growth in telecom services in India. The notional loss in revenues through these concessions would be made up from the increased revenue through licence fee and service tax paid to the government from increased usage brought about by affordable tariffs. Moreover, the association has argued that high excise duty on locally manufactured products does not provide an impetus for development of a strong manufacturing base in the country.

At present, fixed wireless terminals (FWT) are subjected to 27.8 per cent of total duties, which comprise 10 per cent basic customs duty and 16 per cent countervailing duty (CVD), while a concessional rate of 5 per cent basic duty is levied on mobile handsets, without any CVD. The ABTO has asked that FWT be treated at par with mobile phones, as they work on the same technology. Also, that (a uniform) customs duty of 5 per cent be levied on all telecom equipment, down from the current basic customs duty of 10 per cent or 20 per cent. The association has also demanded that the benefits of zero import duty be extended to mobile switching units imported by basic operators. At the moment, it is only cellular operators who benefit from zero import duty on mobile switching units. Basic telecom service providers have also requested that CVD should not be levied on imported telecom infrastructure equipment (presently at 16 per cent), where the equivalent is not manufactured in India. The telecom body has called for an excise duty of 8 per cent instead of the present 16 per cent, so that the domestic manufacturers get a boost. It has also pointed out the need for the service tax to be pegged at 4 per cent, down from the current levels of 8 per cent.

Dilip Modi
Investments in mobile telephony infrastructure should be treated as equivalent to building social infrastructure and should be seen as a national cause. Mobile telephony has nurtured the platform for the nation’s growth with growth with growing subscriber numbers that are expected to surpass the fixed line subscriber base very soon. However, with the current national teledensity only at 8 per cent, there is still a huge market to be tapped.

In order to encourage growth in the telecom sector the government should put in place an economic policy that would reduce input costs like import duties on telecom equipment as per international standards to promote growth and increase affordability. The taxation policy adopted for this sector should be growth oriented with minimum entry barriers and designed to cover the administrative and processing costs. Currently this is not in line with international benchmarks.

In this way, the operators would be provided a platform to achieve the desired teledensity targets and at the same time meet the rural rollout obligations.

R. Ramaraj
With the advent of the knowledge economy, internet data centers have become the heart of a connected world. India has the opportunity to become a global repository for data in terms of hosting, and for disaster recovery and business process continuity. To encourage this, the government must declare internet data centers to be special economic zones with revenues deemed as export income, capital equipment import allowed at zero per cent duty against export commitments, and exemption from service tax for five years.

The budget should also encourage the proliferation of PCs to encourage their penetration with import at zero per cent duty. This will have cascading benefits across the board and accelerate internet growth, online commerce, e-governance services, online services, e-learning, telemedicine, etc., not just in urban areas, but in rural areas as well.

Rangnath Salgame
We urge the new minister and the government to continue to drive telecom reform and deregulation. We believe that communications, enabled by anytime-any-where broadband connectivity, can improve individual and business connectivity, productivity and service availability.

We believe that the government has an active and necessary role to play, both as user and as a market catalyst, in fuelling the adoption of IT in India.

Increased government adoption of networking is necessary to enable citizen-facing services to be deployed so that the benefits of e-governance reach the masses. There are already some decisive steps that have been taken in this direction (e-seva in Andhra Pradesh, GujWAN in Gujarat, online railway ticketing, wireless hotspots in Bangalore and at the Dal Lake in Kashmir.)

Mohit Saraf
The telecom industry’s expectations from the new government are predictably the progressive furtherance of liberal government policies so far. There is the important caveat that there were, and are, policy areas where industry apprehensions must be allayed by energetic government intervention.

The year 2003 saw unprecedented growth in the telecom sector. The massive increase in the subscriber base from about 10 million to over 28 million says it all. Government policies must be directed towards assisting the industry in furthering the momentum achieved in the previous year, in terms of growth and increase in teledensity.

At the forefront of the industry’s reform agenda would, perhaps, be the issue of raising the cap on foreign direct investment (FDI) in the telecom sector. Due to the government’s failure to lay down a clear roadmap in this regard, 2003 saw the lowest ever levels of FDI in the sector since 1995. This amounted to a staggering 97 per cent drop in FDI over previous years! Under the previous government, an increase in FDI limit from 49 per cent to 74 per cent had been mooted. It was widely believed in industry circles that such a move was imminent. The elections, unfortunately, over shadowed everything else and the proposal remained just that. Increased FDI inflows would greatly assist the industry to step up its efforts towards capacity expansion and achieving higher quality standards as telecom service providers.

The second major issue that the telecom industry would presumably expect the new government to grapple with is the transition to a truly unified licence regime. At present, India has a partially unified licence regime. A completely unified licence regime would enable operators to offer a wide range of services such as long distance telephony, internet and local access services under a single licence. This is crucial to ensuring that the benefits of the latest technological advances are made available to the consumer expeditiously. Government policies that are technology rigid stifle the growth of industry and innovation.

The government would be doing everyone a favour by operationalising the so-called Universal Service Obligation (USO) Fund and substituting the same in place of the present access deficit charges regime.
 

The new United Progressive Alliance government in its common minimum programme (CMP) has emphasized that it is committed to development of the infrastructure sector and growth of the services sector, including the telecommunication industry. The CMP also mentions strengthening of regulatory institutions as its avowed objective.

Between the industry’s expectations of the governing and the stated promises in the CMP lies an abyss of possibilities. It will be interesting to see how this is filled.

Mahesh Uppal
The more important part of the government’s role in the telecom sector relates to areas of immediate investor concern where the government, rather than the regulator, TRAI, has the final say. These relate to issues of spectrum and foreign equity besides taxes and duties on equipment. A coherent spectrum allocation as well as a pricing regime that is fair and treats spectrum as an important natural resource will go a long way. There have been conflicting reports about the government’s stand on the foreign equity limit in telecom licences. Clarity in this area will accelerate several important investment decisions.

A different type of concern relates to how the government performs its twin roles as the policy-maker and the owner of Bharat Sanchar Nigam Limited (BSNL), the incumbent operator. BSNL has the largest market share and the largest number of subscribers; especially outside the larger cities, BSNL is often the only player. The challenge for the government is, on the one hand, to support BSNL in its role as a profit-making asset and provider of infrastructure to the poor and on the other hand, to regulate its massive dominance in the marketplace. If unchecked, BSNL can become a major obstacle to fair competition.

What are the areas of concern that need to be addressed?

B.G. Bhalla
The areas of concern that need to be addressed are the high artificial costs borne by the consumers and the high licence fee and custom duties. The end users should be allowed to exploit and use technology as it exists and develops. There should not be any artificial barriers to the exploitation of technology like data rates and size of the dish.

S.C. Khanna
In addition to the recommendations the ABTO has sought clarification from the governmenton the following: non-deduction of tax on IUC; non-applicability of tax deduction at source provisions on bandwidth charges; software payments to foreign companies to be treated as business income and not royalty income and hence not subjecting it to withholding tax in India.

Rangnath Salgame
The government needs to champion the acceleration of network adoption – at both the central as well as state level. This will be the cornerstone of success in the “inter-net economy”. There are two key areas where we believe the government needs to proactively drive policy:

Relief in tariffs for import of networking equipment, in this regard, will have a ripple effect in efficiency and productivity for the whole economy, apart from helping bridge the digital divide. To enable Indian companies to compete in the global marketplace, it is important for the government to continue to reduce tariffs on networking and IT equipment. Currently, the average duty rates are about 28 per cent – post-reductions in January 2004. This rate is still high, compared to the 0-15 per cent rates in other ASEAN countries.

Regulatory environment on closed user groups and convergence, which is limiting the deployment of IP telephony. Across the world, CUG-PSTN interconnect has been a key driver in fuelling the growth of converged voice and data communications. India remains one of very few nations which still does not allow interconnection.

We – along with the entire industry and industry associations – have been working with the government to regulate policy such that the market and the consumer could benefit.

Mohit Saraf
Several regulatory and policy issues need to be urgently addressed by the government. One issue surely is the effective implementation of quality of service (QoS) norms. This will have a lasting and pro-found impact on the quality of telecommunication services in India. In all fairness, TRAI has been periodically releasing and amending QoS norms. Tragically for consumers, compliance with these norms – particularly in basic services – has been palpably pathetic. In this connection, the government would do well to address the legitimate concerns of consumers and consumer organizations.

Issues relating to spectrum allocation and management also need to be addressed. Concerns have been voiced about the need for a more scientific method for calculation of spectrum fees. Spectrum is a limited resources and its efficient use must be ensured through a system of incentives and disincentives. Penalizing inefficient use of spectrum and encouraging use of more advanced spectrum-efficient technologies are indicative of the corrective steps required. In this connection, various methods such as auctioning of spectrum and trading in spectrum have been suggested. The government needs to carefully consider the various options realistically and develop a suitable policy framework which will have enduring appeal.

Finally, slow service expansion in rural areas – particularly by fixed line operators – remains an area of grave concern. This is largely due to the lack of a viable policy framework for promoting investment in remote unconnected areas and the complete lack of incentives for smaller entrepreneurs to enter this market.

It is only to be expected that a government that largely attributes its ascendance to power to the rural voter would consider the “return favour” of extending telecom connectivity to them. Hopefully, the road ahead leads to country roads.

Mahesh Uppal
The real areas of concern relate to the level of the government’s commitment to independent and robust economic regulation. TRAI’s success has been more as an administrative regulator where it has helped to resolve many legal issues that bogged down the sector and (TRAI has also brought resolution) in those areas such as tariff, which are of interest to operators and consumers. However, TRAI’s record is much less impressive in its role as an economic regulator where it has been less successful in reining in the market power of the incumbent (BSNL), which has thwarted many decisions that are critical to maintaining a level playing field. For example, the decisions relating to accounting separation, asymmetric regulation, bundling of services, etc., which are critical for competition to thrive, remain unimplemented for a variety of reasons including litigation by BSNL.

The minister for communications and information technology is the boss of the person chairing the TRAI as well as the boss of the chairperson of BSNL. How credibly this government performs in these frequently conflicting roles, and the brief the minister gives to these two gentlemen, will determine the extent to which competition in the telecom sector can deliver on the promise of quality, price and growth. The liberalisation of the telecom sector, despite all these concerns, has admittedly delivered more than other sectors like power. However, if the government takes some corrective measures, we will discover that this sector can deliver much more than it has.