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The Union Budget 2007 presented by the finance minister P Chidambaram may be memorable to telcos for both good and bad reasons. Contradictory to telecom industry expectations, there are no major incentives and growth drivers that they can boast of. However, measures to boost the agriculture, infrastructure and education sectors will have a telling impact on the telecom industry as the resurgence in these three sectors helps in ensuring smooth flow of funds among the lower and middle class, one of the main target segments of the telecom sector in coming years.

Silver Lining
However, the silver lining is that the government has finally recognized one of the long-pending demands of the industry to rationalize the number of levies on the sector, which works out to as high as 30% of the total revenue of companies, and has asked the Department of Telecommunications to commission a study for a unified tax structure for the sector. But this does not mean that there will be a reduction from the present tax. At present, telecom companies which have faced a disheartening budget in 2006 as well pay license fee, spectrum charges, access deficit charge, sales tax, custom duty, stamp duty, octroi, service tax, etc.

The telecom industry, which is adding close to 6-7 mn subscribers per month and is expected to take the number to 500 mn telecom subscribers by the end of March 2010, is going to face the rage of customers if the operators increase the fee for downloading value added services as the current budget suggests for some action, though industry captains declined to share their pricing strategy. Inclusion of development and supply of content for use in telecom and advertising, allocation of work contracts for cell sites and commercial rentals, in the service tax net, will definitely challenge revenue streams of telecom service providers.

The budget was received with apprehensions, and telecom head honchos have some suggestions to maintain the momentum.

Tremendous Job
Sunil Mittal, chairman and managing director, Bharti Airtel, says, "We are glad that the finance minister has acknowledged a long standing demand of the industry to replace multiple levies with a single levy."

Ravi Sharma, president, Alcatel-Lucent, South Asia, says, "From the telecom industry perspective, lot of focus is going in the rural areas this year, which will proactively contribute in making communication a vital tool in the hands of the farmers. This will enable farmers to have relevant information available faster such as weather conditions, prices, etc, positively impacting their life."

Despite the challenges, the finance minister has done a tremendous job in balancing them. Agriculture and power sectors clearly need priority. Faster and time bound clearances of power projects can be one area that can have major impact on the overall growth of the economy.

Overall Focus
Jangoo Dalal, president, India and SAARC, Cisco says "It is heartening to see that the government is clearly committed to e-Governance, having increased the allocation both at the center and state level, with a new scheme for manpower development in the software export industry. Computerization programs for the public distribution system and FCI will also enhance efficiency and benefit the common man," Dalal says.

"The proposal to grant pass-through status to venture capital funds for undertakings in IT, biotech and other emerging sectors, and the service tax exemption for technology business services provided by technology business incubators and eligible incubatees will further encourage innovation and IP creation in India. Significantly, increased allocation to both primary and secondary education and innovative financing for infrastructure projects are positives and are imperative to sustain growth in excess of 9%," he adds.

Different View
However, telecom industry associations like AUSPI have a different view and justification to support their cause. SC Khanna, secretary general, Association of Unified Telecom Service Providers of India, says the CDMA group was very disappointed with the government's refusal to cut the license fee. On top of this, an increase in the service tax will hit telecom particularly hard. "We were expecting a cut in service tax, there is no change in that. There is no gain either for the sector or for the customers from this budget." The total government levies from license fee, spectrum fee and service tax is estimated to increase to Rs 30,856 crore in 2007-08 from Rs 25,142 crore in 2006-07, according to AUSPI.