Missing the Big Picture

By: Hemant Joshi,  Partner, Deloitte India

The high debt is clearly not easy to payback by the operators considering current EBITDA and capex requirements of the industry.

The telecom sector in India has been struggling with different challenges such as high debt of around INR 7 lakh crore, high spectrum prices, high taxes (30%), price wars, lowest tariff in the world, reduced revenue due to OTT services, etc.

The high debt is clearly not easy to payback by the operators considering current EBITDA and capex requirements of the industry. The data revenue is diminishing with rising competition as the prices have been slashed by over 50% last year. The banks have raised their concerns about the defaults and the current financial health of the telcos amidst the erosion of profitability.

The focus of the Union Budget 2018 is clearly on rural economy, agriculture, healthcare and infrastructure. Such a focus on telecom sector to make it viable and profitable is missing. The Union Budget was unable to address any of the burning issues faced by telecom sector including reduction in spectrum usage charges (SUC), USOF, license fee, etc.

To provide relief at an operational level, initiatives such as removal of spectrum holding limitation and implementationof uniform Right of Way rules across states also remain unaddressed. Telecom needs to be considered as a fundamental and strategic industry like railways or banking, road, power as it is a key to GDP growth.

While NTP 2018 is expected to come out soon, the budget could have addressed the challenges in telecom sector in a more comprehensive manner. However, following items in the budget are positive for the sector.

5G Technology: Technology adoption in India has been slow in comparison to global developing nation due to several regulatory issues and lack of ecosystem. Government’s aggressive push towards commercial launch of 5G technology in India by 2020 along with other emerging economies could be a boon for the telecom industry.

While several R&D projects are underwayfor developing 5G technology, the setting up of 5G center in collaboration with IIT Chennai would speed-up the development and help India being early adopter of the next generation technology rather than being a laggard.This center could also work on the development of Internet of Things (IoT) and Machine to Machine (M2M) applications which are relevant and best suited for India. India could take lead in setting up standards for next generation technologies, and in turn help in boosting Make in India initiative.5G technology could enable a $27.3 billion revenue potential for the Indian telecom operators by 2026.

BharatNet: 250,000 villages have optical fibre connectivity under Bharat Net program, wherein 100,000 gram-panchayats have been connected with high-speed optic fibre network in the first phase of BharatNet. The government has allocated INR 100 billion for the next phase of the program which will work towards connecting another 150,000 villages under this initiative.

Wi-Fi Hotspots: In the budget, the government has proposed to add another 500,000 Wi-Fi hotspots and has allocated INR 100 billion towards augmentation of telecom infrastructure. The Wi-Fi hotspots aim to provide broadband access to over 50 million rural citizens. This is likely to boost different industries such as e-commerce and e-governance to the citizens. More railway stations will get public Wi-Fi services in the coming years.

Domestic Manufacturing: The government has increased basic custom duty (BCD) on mobile phones from 15% to 20% as well as customs duty on specified parts and accessories including lithium-ion battery of cellular mobile phones from 7.5% / 10% to 15%. Though this will increase the price of imported mobile phones and accessories and may delay the adoption of smartphones in the country but it is a big push towards domestic manufacturing and Make in India initiative.