Need to add 500m rural subscribers and 520m broadband connections by 2020
New Delhi, 20 March, 2013: Telecom sector’s contribution to GDP stands at 6.9%, with a revenue of INR 3,73,000, for FY’12, and Government setting targets with NTP’12; but due to high debt and stagnating revenues leading to decline in operators’ investments, delay in network expansion and high tariffs, are making telecom services unaffordable for Indian citizens and isolating them from socio-economic development, suggests Ernst & Young and ASSOCHAM analysis. According to analysis titled, ‘Telecom sector: harbinger of inclusive growth’,it is imperative to add more than 50 crore (52 lakhs/month) rural subscribers at a CAGR of 12%-13%, through 2012-2020, with an incremental capex of INR 80,000-90,000crore to achieve target of 100% rural tele-density.
Throwing light on NTP 2013, the analysis highlights the need to achieve 52 crore (54 lakhs/month) broadband connections at CAGR of 29%, through 2012–2020, with a capex investment of INR 1,30,000-1,40,000 crore,, by 2020 (fig. as per Ibid). Further, it has become necessary to retain ‘value addition’ in the country by giving boost to the manufacturing sector, as 80% demand of telecom equipment worth INR1,85,000 crore, can be met by domestic manufacturing, by 2020. Ernst & Young analysis highlights that the operator balance sheets are stressed with total debt/EBITDA of around 7.4X2 in 2012. Such significant losses and declining net-worth can be attributed to high interest costs for debt.
Addressing the Parliamentarians at the ASSOCHAM roundtable discussion, Prashant Singhal, Partner in member firm of Ernst & Young Global said, “Communication and access to information will pave the way for India’s growth story. It is imperative for the Government to enable favourable policy environment, such that the Indian citizens can be empowered and contribute to the socio-economic development of our country. Further, cumulative capex is estimated to be INR2,50,000 crore for 2013-20, by telecom operators to meet next level of growth, which can be utilized only by increasing rural tele-density, indigenous manufacturing and providing broadband connections to achieve 60 crore subscribers by 2020.”
“The telecom phenomenon as a critical infrastructure, today powers not just citizens but economies itself. The telecom industry has been the flag-bearer of the Indian liberalization, reforms process and has driven connectivity from a tele-density of 0.8 per 100 persons, in 1994 to over 70 per hundred persons today. While the Government has on its part, given unstinting support to the telecom sector and the industry has responded and lived up to the requirements achieving high telecom penetration at affordable prices, the task is not yet complete, because we still need to bridge the growing rural-urban digital divide (40% vs 149%)”, said T.V. Ramachandran, Chairman – National Telecom Council, ASSOCHAM.
He further added, “Telecom whether fixed or mobile, will be the biggest enabler not only for consumers or operators, but for a whole range of stakeholders, from Government, municipalities, institutions, students, suppliers of services etc. Thus, it is not just any one measure or decision that will propel next level of growth, we will need to look at the sector in its entirety and examine and address a range issues that ultimately benefit the consumer or the AAM ADMI, while achieving the Government’s policy objective.”
Ernst & Young and ASSOCHAM stressed on the following strategic enablers for growth of the telecom sector:
- Telecom sector to be granted “infrastructure” status
- Tax benefits under Section 80-IA of the Income Tax Act
- Relaxation in funding through ECB and domestic bank lending route
- Spectrum management (both central and state)
- Forever loss to exchequer’s kitty due to delay in auction of 3G and BWA spectrum - INR80,000 crore (fig. as per GSMA)
- Need to lay down a clear roadmap for spectrum management to ensure transparency
- Rationalisation of taxes and levies (both central and state)
- Taxes and levies as high as 26.9% of AGR, for FY11 (fig. as per AUSPI)
- Need for reduction of multiple levies to a ‘single unified levy’
- Rollback on excise duty increase from 1% to 6% for mobile phones costing beyond INR2000
- Price of each handset to increase by 3.25% (fig. as per ICA), thus reducing mobile handset uptake
- Hike in prices to propel growth in the mobile handset grey market, which was estimated to be around INR10,000 crore, in FY12 (fig. as per Ibid)
- Price rise to hinder government’s broadband vision
- Lowering of EMF radiation norms way below international standards
- EMF exposure limit (Base Station Emissions) is lowered to 1/10th of the existing
- ICNIRP exposure level - 0.92 watt/meter square (fig. as per Ibid)
- In the US, Canada and Japan - radiation exposure limit is as high as 12 watt/meter (fig. as per DoT)
- Process for faster resolution of telecom litigations
- Total contingent liabilities of telecom service sector estimated at INR75,000 crore
Moreover, the sector has absorbed inflationary pressures as tariffs have continued to decline over the years. Telecom sector FDI inflow has declined significantly to INR387 crore, from April-December 2012, as compared to INR9,012 crore in FY12, and same goes for PE investments with a sharp decline of 99.8%, for the same period.
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