Budget 2021

Little relief for telecom players

Bavadharini KS | Updated on February 01, 2018

The Change

With the need for data growing, the telecom sector is being put on a high-speed track to meet the growing data demand. There is specific focus on rural India. The Centre has increased its allocation to BharatNet to ₹8,175 crore for FY19 from ₹5,710 crore last year. BharatNet is an initiative to increase broadband penetration in rural India. Optical fibre cables (OFC) have been laid in over 1.6 lakh gram panchayats, and phase-I of the project, connecting one lakh gram panchayat, is completed. The project envisions providing reliable and high-quality internet connectivity in 2.5 lakh gram panchayats by the end of March 2019.

 

BharatNet will be one of the biggest ‘Make in India’ initiatives. Cable laying companies and cable network companies such as Paramount, Sterlite Technologies and Tejas Networks will benefit from this project. Telecom companies such as BSNL could also help in providing the infrastructure facilities. The Centre proposes to set up five lakh Wi-Fi hotspots that will provide access to internet to five crore rural Indians. Also, the Centre has plans to launch a ‘DigiGaon’ initiative to provide tele-medicine, education and skills through digital technology.

The Background

Internet penetration in India is still low compared to global standards, though the entry of Reliance Jio in September 2016 has resulted in a surge in data consumption. In order to bridge the gap and provide internet to all, BharatNet was launched in 2012. Bharat Broadband Network Ltd (BBNL) manages the operation of BharatNet and provides broadband connectivity of 2 Mbps to 20 Mbps for all household and institutions in partnership with States and private players.

The entry of Reliance Jio has helped in the improvement in the availability of data and its penetration. However, in FY18, telecom companies suffered margin pressure due to intense competition from tariff wars, launch of VoLTE services by the telecom players, mass consolidation and regulatory changes such as the reduction in IUC (interconnection usage charge). The sector has been reporting declining profits and revenues in the last few quarters. Recently, Bharti Airtel and Idea Cellular have reported revenue decline of 13 and 25 per cent year-on-year, respectively, for December quarter 2017. Bharti Airtel’s profit fell 39 per cent while Idea reported consecutive losses for five quarters.

The Verdict

With the Centre’s move to increase broadband connectivity and telecom players’ active participation to increase subscriber base in rural areas, the digital divide would be reduced at a faster rate. But with no new reforms, declining average revenue per user, mass consolidation of the industry, high debt levels, there is little relief to the stressed telecom sector. Players such as Airtel and RJio have fortified their spectrum holdings. The Centre would have difficulty in raising funds through auction, given that spectrum bands that were recently acquired are set to expire after 10-15 years. The Budget has not met the financial needs of the industry reducing the spectrum usage charge, licence and GST rate on telecom services.

Published on February 01, 2018

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