Excerpts from the interview.

On telecom modernisation.

The country’s telecommunication sector is undergoing a phase of rapid consolidation, expansion and modernisation, evidenced by both subscriber and service growth.

Telecom modernisation requires a massive expansion of infrastructure as also significant qualitative improvement, even as huge capital investment, high revenue sharing licence fee and a long gestation period along with the rapidly reducing tariffs have put tremendous pressure on the profitability of the telecom companies.

On the new technologies in the telecom space.

The next few months promise the introduction of 3G, WiMAX, and VoIP networks. 3G technology is a catalyst to the development of the Indian telecom sector and is going to come in two different flavours.

First, the existing operators with 2G or 2.5G technology would be upgrading to 3G and second, many new operators and some foreign players would be entering the market with 3G. The economics for the telecom operators (existing or new) for rolling out of these new services would be attractive if they are able to achieve a minimum scale coupled with the tax benefits for initial years.

Therefore, in order to support the growth and boost the sector, the Government should extend the cut-off date for tax holiday available under section 80IA of the Income-tax Act, 1961 to the new undertakings introducing telecom services as well as the existing undertakings that take up massive expansion and upgradation of their existing infrastructure.

On consolidation in the industry.

Though the ARPUs are flattening or going down, telecom companies are pioneering about being efficient. For example, Indian telecom operators are shedding their infrastructure baggage and moving over to attend to more pressing requirements, such as increasing the subscriber base and improving customer focus.

Consolidation would help the telecom companies to remain asset-light and enhance competitiveness and unlock shareholder value. It is therefore expected from the Government in the Budget that the section 80IA tax holiday would continue in the event of transfer of eligible undertaking providing telecom services/network/infrastructure under a scheme of amalgamation/de-merger.

Specific provisions could, however, be incorporated to prevent tax-driven reorganisations. In essence, the restrictive provisions introduced in section 80IA (12A) by the Finance Act, 2007 need to be deleted, because such restrictive provisions are not there for other sectors.

On common infrastructure.

Keeping in mind that the Ministry has allowed the sharing of infrastructure between various operators, the independent tower companies are making huge investment to develop telecom network in various geographies. This is also crucial, as the next phase of mobile growth is being seen in rural and sparsely populated areas where installing individual towers (60-65 per cent of network expenditure) increases both capex and opex costs for network service providers.

Common/sharing infrastructure would also entail faster penetration of multiple telecom service providers at lower costs. Better utilisation of scarce natural resources such as land, fuel, electricity etc. would be in the public interest, compared to having multiple sets of poles or towers on streets for each operator. Infrastructure companies serve as a backbone to the telecom sector and help in efficient functioning of the entire eco system.

Therefore, as a further step to achieve the objective of infrastructure development, the Government should extend the tax benefits under section 80IA to companies providing infrastructure facility to telecom service providers. Similar benefits are available to the power sector under section 80IA when the enterprise undertakes modernisation or renovation of distribution and transmission lines for supporting the power generation and distribution activities.

On tax holiday extension.

With new technologies and policies being introduced and investment liberalisation, the telecom industry is driving to converge solutions via mobile Internet services over better platforms. A combination of technologies with VOIP, WiMax, GSM, CDMA and local networks will also increase the value of each of the investments already made.

There is no need to discriminate the new licensees geared to provide qualitative and effective services. Therefore, the cut-off date of March 31, 2005 should be extended for all telecom operators who have been issued licence by the Government at different times and the extension of the tax holiday to all those expanding their operations into new circles.

Other matters of interest.

Given that the telecom sector consists of a lot of inter-service transactions between various players like inter-connect charges, use of passive infrastructure, network management services etc. clarity on tax withholding obligations on such transactions is also expected, which would help in reducing avoidable disputes and increase operational efficiency. Further, clarification is also expected from the Government that telecommunication services include VAS services in the line of definition of telecommunication services under the TRAI regulations.

Indian telecommunication sector is a very competitive and fast-growing sector in the world. The telecom trends in India shows a great impact on everything from the PC, the Internet, broadband, cable handset features, talking SMS, IPTV, and managed services to the local manufacturing and supply chain.

However, due to huge initial fixed cost and lack of infrastructure, achieving break-even seems to be difficult for telecom operators and service providers. The timely introduction of some of the incentives stated above would provide much needed boost to the sector, and help the players in providing greater communication standards and making the Indian network progressive.

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