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Spoonfeedin WOrld

Business – India;Let’s kill telecom

Sunil Jain

Everyone knows that telecom is the country’s fastest-growth sector, but do we have to kill it? On average, the sector pays more than 25 per cent of its topline to the government as various taxes, and the government is seeking to raise this under the guise of implementing a flat revenue-share licence fee. All this, without even the legally-mandated consultation process with the regulator, the Trai.

Let’s deal with the high taxation first. The telecom ministry argues that since some firms are passing off their revenues from voice calls as revenue from data traffic (there is no licence fee on data), a single licence fee on all revenues will prevent arbitrage. In principle, this is a good idea, but two issues arise. First, the 8.5 per cent licence fee rate proposed raises the levy significantly for several users — the rates are 6 per cent for long-distance calls and for ‘C’ category circles, 8 per cent for ‘B’ category circles and 10 per cent for metros and ‘A’ category circles. Why should certain users be asked to pay more for the government not doing its job properly? Also, of the Rs 26,200 crore collected under the USO (Universal Service Obligation) part of the licence fee, not even Rs 8,000 crore has been spent so far to fund rural telephony.

Second, this does not take care of the original problem of firms under-declaring their revenues — in the Reliance Communications case, Kotak Institutional Equities Research had pointed out in July 2008, RCom’s gross revenues declared to the Trai were a fourth less than those declared to its shareholders. So, single rate or multiple rates, the government just has to have its own mechanism to check on what companies say.

A committee set up by the telecom ministry talks of how the industry is growing at a huge pace, but licence fee revenues aren’t keeping pace. This is absurd. For one, there is no clarity on how much revenue the government gets. The DoT’s annual report puts the 2008-09 revenues from licence fees at Rs 3,997 crore and at Rs 3,455 crore from spectrum charges; the Trai puts them at Rs 9,650 crore and Rs 3,177 crore, respectively — the committee doesn’t talk of spectrum charges (typically 2-4 per cent of revenue) but puts licence fee revenues at Rs 9,476 crore! Obviously which figure is used makes a huge difference. Most people, including the wise men in the committee, look at the subscriber growth but don’t look at what’s happening to revenues. If you look at Trai data from the quarter-ended June 2008 to March 2009, the subscriber base has risen 32 per cent, but revenues have risen only 10 per cent — licence and spectrum usage fees have risen 9.3 per cent. So where’s the great problem being talked of at the overall level of the industry? Of course there is a huge problem at the level of individual companies, but the government audit on this is hardly moving at all.

(By the way, Rs 12,827 crore of spectrum and licence fees on revenue of Rs 113,011 crore in 2008-09 works out to a tax of 11.3 per cent. Add to this another 3-4 per cent for various sales taxes, 0.5 per cent tax for microwave links, 10 per cent service tax and various other taxes like those on transmission towers or right-of-way levies, and the effective tax figure comes to more than 25 per cent.)

The other issue is that if the government is keen to keep its revenue shares up, shouldn’t it be doing something about the hugely concessional tariffs being offered by new players? After all, as these players get new subscribers, the value of their licences rises, but the revenue to the government does not.

There is then the issue of consulting the Trai. Given that when he was in the TDSAT, the current Trai chief gave a clean chit to the telecom ministry’s handing out of telecom licences last year at a fraction of their market price, you’d have thought the ministry wouldn’t mind consulting the Trai on whether or not to go for a flat licence fee. The law is very clear that a consultation is required. Yet the ministry argues this is required only for new licences, not for existing ones. This is not true as even a cursory reading of Section 11 (a)(ii) will make obvious. Clearly the ministry is taking no chances with even its hand-picked chief — this is in keeping with its grand tradition of ignoring the Trai when it suits it and using it (as under Pradip Baijal) when it suits it. Apart from getting every stakeholder’s opinion on the matter, a Trai consultation would also avoid the embarrassment of the government not even knowing what the correct figures for licence fees are

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September 25, 2009 - Posted by | Uncategorized |

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