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Budget 2011: Telecom

The Indian telecom industry has continued with its strong subscriber additions during the current year. At the end of December 2010, the total subscriber base stood at nearly 747 m, of which wireless subscribers contributed to nearly 94%. During March 2010, this figure had stood at about 578 m. The key reason for such a growth in subscriber base has been the affordability factor. With almost 15 operators competing for subscriber share, tariffs have been declining. Therefore while companies have added subscribers to their base, the benefits of the same have not really reflected in their financial performances. Added to this has been the burden of the interest costs related to the huge amounts of debt that most companies have taken on to fund the 3G spectrum fee. This has led most companies to operate on very thin margins.

 Budget Expectations
  • Clarity on the tax treatment for the 3G spectrum fee outflow. Operators want this to be classified as an intangible asset and that the interest cost on the loans taken on them can be capitalized up to the date of commencement of services.

  • Extension of tax holiday for operators who have launched their services after March 2005.

  • Tax holiday benefits in case of M&A deals to be continued in order to aid consolidation in the sector that is suffering from hyper competition

  • Telecom to be given the status of infrastructure.

     Budget Measures
  • The wages under the National Rural Employment Guarantee Scheme (NREGS) have been indexed to the consumer price index for agricultural labour. This would result in significant enhancement of wages for the beneficiaries of the scheme.

  • Plan to provide rural broadband connectivity to 2.5 m Panchayats in the country in the next three years.

  • Plan to provide optical fiber connectivity to all 1,500 institutions of Higher Learning and Research through the National Knowledge Network (NKN) programme.

  • Full exemption of the countervailing duty (CVD) of 4% on accessories, parts and components imported for the manufacture of mobile phones has been extended for the full year.

  • Increase in the rate of Minimum Alternate Tax (MAT) from 18% to 18.5% of book profits

  • Surcharge on domestic companies reduced to 5.0% from 7.5%.

     Budget Impact
  • Increase in wages under the NREGS will help in improved spending by the customers in the rural areas.

  • Lower CVD on accessories, parts and components will help in keeping the cost of handsets low.

  • The increased MAT rate would impact the bottomline of telecom operators.

  • The expansion of rural broadband connectivity would help boost broadband penetration in the country.

     Company Impact
  • Considering many new players have launched mobile services in India, the incumbents are looking at targeting smaller towns and villages for maintaining their leadership position in terms of revenues and subscriber growth. Companies such as Bharti Airtel, Reliance Communication and Idea Cellular, which are present across India with a good distribution network, would be the key beneficiaries.

  • With the government aiming at improving the amount of disposable income in the hands of the people, especially for the rural population, it would help the telcos.

  • Telecom companies would be able to enjoy the benefits of low cost handsets as it would help in keeping the strong pace of subscriber additions buoyant. This would hold strong for rural markets.

  • Increase in MAT to impact profits of Bharti Airtel and Reliance Communications. However, the impact would be marginal.

  • The foreign dividend tax has been brought down to 15%. This would benefit Bharti Airtel's repatriation of profits from its foreign operations especially those from the Africa.

  • The optical fiber connectivity through the NKN programme would help companies like BSNL, Tata Communication and others in the fixed line segment.

    Budget Impact: Telecom Sector Analysis for 2010 
    Latest: Performance Of Telecom Stocks | Telecom Sector Report

  • Complete coverage Budget 2011

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