Indian telecom sector’s expectations from Budget 2013-14

Telecom Lead Asia: Indian telecom sector’s expectations from Budget 2013-14, according to Frost & Sullivan, include clarity on various  services and infrastructure aspects.

Abhishek Chauhan, Senior Consultant, ICT Practice, Frost & Sullivan, says the sector is in dire need for revival of investor sentiment and consolidation.

Paving way for smooth FDI into the sector, reducing checks on greenfield investments and favorable merger and acquisition (M&A) guidelines to fuel consolidation would help achieve this.

Robust financing schemes, tax exemption, and telecom special economic zones (SEZs) would promote indigenous manufacturing.  Directive on single window for right of ways would help overcome some of the major hurdles in laying telecom infrastructure, especially fiber.

The Government spoke about Goods and Service Tax in the last Budget. However, no guidelines or way forward were actually executed. Implementation of GST would help enable tax reforms and benefit the telecom sector as well.

Bringing mobile devices and other relevant telecom equipment under special provision of Central Sales Tax would help in reduction of prices by 7-8 percent, thereby leading to proliferation of these devices in untapped markets, especially the rural market.

The telecom industry is looking forward to Budget 2013-14 to come up with policies that could help revive positive sentiments in the entire telecom ecosystem, especially after a relatively dismal 2012. Keeping in mind key pointers mentioned above would help unleash the significant untapped potential that the Indian telecom sector has to offer, especially in the area of non-voice services. All stakeholders are anticipating that this Budget will reinstate the telecom sector as the Indian economy’s leading growth driver.

According to Frost & Sullivan, the year 2012 proved to be challenging for the Indian telecom industry. Despite being one of the fastest- growing industries in the world, the Indian telecom sector was plagued by lower investor sentiment, regulatory hurdles, lack of clarity on spectrum policy, hyper competition, shortage of right infrastructure, low margins, and under-penetrated rural areas. Even so, the sector continues to be dynamic and carries tremendous potential for services and applications beyond voice. Some of the key highlights of the sector in 2012 have been discussed here.


The recent 2G spectrum scam led to the Supreme Court cancelling 122 mobile network licenses in February 2012, which had a negative impact on concerned players  The Empowered Group of Ministers (EGoM) on the 2G auction decided to opt for partial spectrum reframing, allowing operators to retain 2.5 MHz in the 900 MHz spectrum category.

However, they will be required to pay an auction-determined price for the same, which will be fixed in 2013  2G auction at the end of 2012 could only accumulate revenues of $1.7 billion for the Government  Tower companies’ growth was affected by lower than expected take-off of 3G and slow rollout of 3G/BWA networks.

The telecom sector found it difficult to raise any capital, making operators spend bare minimum on network expansion  3G services continued the slow momentum and could not justify operators’ optimistic business cases  The sector was hit hard by reduced sales across the ecosystem and negligible telecom infrastructure spending in network rollouts  Sustained increase in the subscriber base has put immense pressure on the existing telecom infrastructure

Proposed implementation of the dual Goods and Service Tax by the Government, to source 65 percent of annual hardware and network-related equipment from Indian companies, will give significant boost to the telecommunications industry’s indigenous manufacturing drive by 2020  Affordability of an average end user has also increased.

Though pricing still continues to assume paramount importance, providing high-quality services at a nominal price range would lead to increased usage, thereby aiding the profitability and therefore, is the key to success in the Indian market 4G LTE was launched in April 2012. This is in sync with the high anticipated growth rate of data services. With the correct pricing and services initiatives, telcos would be able to garner significant revenues and margins that has been a challenge for the telecom sector. Mobile Number Portability (MNP) is expected to drive improvement in network quality of operators. MNP will drive operators to install more Base Transceiver Stations (BTSs) leading to a drop in number of subscriber/BTS from current 1,400 to 1,000; creating further demand for towers

There were a couple of announcements in Union Budget 2012-13 related to the telecom sector:

Announcement 1: Telecom towers made eligible for viability gap funding. Impact: This was intended to induce fresh funds in the struggling tower businesses; and thereby, boost development of telecom infrastructure in the country. However, the tower industry did continue to struggle; especially due to lower tower valuations and lack of investors.

Announcement 2: Mobile phone parts exempted from basic customs duty. Impact: Exemption of customs duty enabled original equipment manufacturers (OEMs) to offer more affordable handsets and this led to increased mobile phone penetration in the country. This was particularly required for proliferation of affordable smartphones, as they are key drivers of data consumption in the country, especially in the rural sector.

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