News › Weekly Alert Article

National Telecom Policy 2011: A Fresh Breather!

National Telecom Policy 2011: A Fresh Breather!
13 Nov 2011

Just as Finance bills are used as an opportunity for announcing economic policy decision, draft NTP 2011 has more on intent and direction Minister Sibal's reformist draft policy traverses far beyond telecom services and attempts to encompass manufacturing of IT & ITeS equipment and addressing spectrum challenges for sectors beyond telecom.

On first brush, the document is a consultant's delight with jargons like mission, standard operating procedures ( SOP), code of practice for sales & marketing, always connected etc. setting out ambitious objectives for of broadband on demand, nationwide - free roaming. The slogans are merely suggestive of India's arrival to third stage of Telecom reforms. The '99 policy needed immediate revision and a different approach when subscriber network was less than one eight of the present base of 900 million subscribers. Also, pace of technological development necessitated a new direction, not to forget the thorny issues on pricing of spectrum.

Some skeptics have echoed that the paper is short of expectations on various counts and the challenge of implementation. However, majority believe that the policy ( which will undergo debate and change ) is well balanced and there is something for all like a balanced budget - Operators demand for additional spectrum allocation and certainty on rolling out quality value added services. Government to realise its larger vision of achieving inclusiveness with telecom as an enabler, addressing pricing issues on spectrum, policy boost to promote domestic manufacturing & more importantly, medium to long term benefit (to consumers) by way of better services and avoiding cascading taxes.

  • On nationwide roaming, operators will necessarily rejig tariff schedules over a period of time, however, I doubt if this will have any immediate impact on their profitability as the roaming fees comprise about 7 to 9 per cent of revenues. In addition, VAS will add to the share of revenue portfolio, which at this stage is limited as bulk of it comprises revenues from voice telephony. Operators who don't have a national footprint will take a serious look at opportunities to consolidate. Hence, it is likely that the roadmap, for free roaming will coincide with consolidation of operators and their licensees.
  • On additional spectrum availability, a clear roadmap which is likely to be accelerated will improve the overall quality of services besides enabling speedier rollout of 3G. The entire gamut of spectrum pricing, trading & basis of allocation is likely to be governed by a separate legislation, though, no timing have been announced for introducing new bill in the Parliament. A separate Spectrum Act makes immense sense as it would avoid conflicts with other beneficiaries within the government such as I&B, Defence, Space and Home Affairs. Presently, the national frequency allocation plan is the policy document that determines allocation and the task is performed by the wireless Planning & Coordination Group in the telecom ministry. It is possible that the spectrum law is administered by a joint initiative of various ministries to ensure coordination and its strategic importance with country's negotiations and better bargain with international telecommunication union.
  • On policy to boost domestic manufacture of telecom & IT equipment, a specific mention with target domestic procurement at 80 per cent by 2020 is indeed bold. India's overall import bill for IT & telecom is expected to be around $300 billion by 2020 and is suggestive of importance that the policy lends. To realise such potential, enabling provisions in the national manufacturing policy and SEZ law will strengthen the policy initiative. Hence, it would require more than a mere intent. The Ministry will be expected to play the role of a facilitator to enable entrepreneurs to set up manufacturing facility, invite FDI & improve the overall environment for local procurement, improving supply chains and removing cascading effect of taxes.
  • On desire to setup a council of experts drawing numbers from service providers, government and academia, the body appears akin to a PM economic advisory council on policy matters. Though the exact role and responsibility of the council has to be fleshed out, a broader role (without intervening in legislative and regulators role) will go a long way in strengthening relationship between the government, regulators & operators.
  • On recognition to streamline tax and duty levies, India is amongst the highest taxed telecom nation with overall tax impact on consumers ranging between 35-40 per cent. Simple matters weather sale of a prepaid card is sale of goods or service or part sale of good & service is being adjudicated in the highest court of law. I would imagine that a significant part of achieving the objective is tagged to the rollout of nationwide GST and the balance would need some level of calibration by the department of revenue on contentious issue such as interconnect charges, sale of goods versus service etc.
  • On proposal to accord infrastructure status, it is unclear if the entire gamut of manufacturing and services would be covered. It is nevertheless step in the right direction and could lead to change in the export import policy besides exchange controls to facilitate offshore debt funding at concessional interest rates. This step in itself would form part of a comprehensive package.

In conclusion, the draft NTP 2011 is clearly an attempt to catch up after a lag of 12 years since the last policy to address demands of the new economy, technological advancements, shifts in consumer preferences where data would get equal importance as voice, regulatory hiccups' and looking into the future of this strategically important sector.

I anticipate an immediate announcement of exit policy and changes to the TRAI act and Telegraph act besides slew of legislative amendments to support implementation of the policy. With a shrewd lawyer in Minister Sibal, that should be the least difficult task for the government.

Your Taxand contact for further queries is:
Mukesh Butani
T. +91 124 339 5010

First published in the India Business Standard column 7 November 2011



Taxand's Take

Taxand's Take Author