The Change

The telecom sector is being put on the high-speed communication track, with a particular focus on rural India. An additional outlay of ₹10,000 crore is allocated for BharatNet for high speed broadband connectivity on optical fibre, which has been laid for over 1.55 lakh km. This will be available in 1.5 lakh gram panchayats with hotspots and access to digital services at low tariffs. The availability of spectrum acts as a stimulus in mobilising broadband for rural India.

The Background

The telecom sector has witnessed major consolidation in 2016-17. Margin pressure, intense competition, favourable spectrum trading and sharing are contributing factors. The recent spectrum auction in October 2016 has resolved the spectrum scarcity that had been crippling the sector. But the auction witnessed low responses on account of high reserve prices, particularly in 700 MHz which had seen no activity.

To boost Digital India and increase the participation of the States and private telecom players, BharatNet, an initiative to trigger broadband revolution in rural India, managed by Bharat Broadband Network Ltd to provide high quality broadband connectivity of 2 Mbps to 20 Mbps for all household and institutions in partnership with States and private players. Over 1.9 lakh optical fibre cable (OFC) pipe had been laid in over 80,000 gram panchayats.

The industry has witnessed unwarranted litigation by the tax authorities on the treatment of spectrum fee prior to March 2016. The authorities have also raised conflicts of interpretation on considering distributors to be agents and charging TDS on the commission earned. However, the telcom players do not consider distributors as agents, therefore, discount allowed to them is not treated as commission.

The Verdict

With the Centre’s move to increase broadband connectivity and the telecom players’ active participation to increase the subscriber base in rural areas, the telecom industry would reduce the digital divide faster. But with no new reforms, competitive tariffs offered by the players and the high finance costs, leaves the future of telecom sector with little choice but consolidation within the industry. The players such as Reliance Jio, Bharti Aitel, Idea Cellular have fortified their spectrum requirements; so, the Centre would have difficulty in raising amount through spectrum auction in the coming years. The Budget has largely failed to address the clarifications required on spectrum fee amortisation and treatment of discounts offered to distributors and the TDS charged.

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