Telecom Industry

Key Positives

The setting up of the Telecom Regulatory Authority of India (Trai) has de-politicised the reform process in the telecom sector. Benefits are already apparent from the new revenue sharing regime implemented by the Trai.

The government has taken initiatives to attract investment in the telecom hardware and services sectors by easing FDI guidelines. This will ease the funding constraint that is being faced by Indian companies.

Key Negatives

In case of cellular telephony services, the proposal to implement a calling party pays regime has been challenged in courts. The matter has been further complicated by the refusal of public sector players - MTNL and DoT, to abide by the rulings of the Trai. Recently, the government has decided to amend the Trai Act to tackle the matter. The outcome is one of confusion and lack of clarity regarding regulation.

Import duty on telecom hardware continues to be at a high 35%. This has led to higher capital costs for telecom projects.

Internet usage costs in India continue to be high. This is mainly due to the fact that users have to pay for the time spent on the Internet as well as the local telephone costs. This has led many to state that the growth in the Internet sector has been stymied due to this hurdle.

Industry wish list

Mr. Amitabh Kumar, Director (Operations) VSNL says:

Customs duties need to be lowered: The country can do well if the budget gives an exemption in customs duty on hardware use in the field of IT telecommunications and media. This will bring down the costs of high end servers, communications software. Today, these rates are around 150% of those prevailing in some of the other Asian countries which are in fact competing with India.

Internet access needs to be made inexpensive: The Internet base in the country can be further increased if the end equipment used by customers for Internet access is also made inexpensive. One reason for the growth and proliferation of TVs in India which are around 55 million is significantly lower cost as compared to a Personal Computer. It would be desirable to drop the duties on components and hardware used for manufacturing PCs, modems and other access devices to let the industry grow.

Penetration of telephones needs to be increased: India has less than 2 million phones in India as against around 400 million worldwide and the gap is constantly growing. It is necessary to correct this imbalance in the long term interest of the industry by reducing the handset prices as well as the monthly usage fees.

A local hardware base needs to be set up: It will be desirable if the budget can focus on bringing down the cost of procurement of components as well as capital cost of setting up of production units in India to develop a low cost manufacturing base in the country. In order to sustain the development in the IT and software industry, the time has come when India should also look at the corresponding growth in the hardware segment like Taiwan and China.