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Run-up to the Budget: Telecom Services Industry

Telecom services: State of the industry (2000-01)

• In 2000-01, revenues of the telecom services industry in India are expected to increase by 18 per cent, as compared with those in 1999-2000.
• In basic services, the growth in demand is expected to be significant in the non-metro areas and the southern states. However, private sector participation continue to remain marginal. (Six service providers are expected to account for 3 per cent of new line additions in 2000-01.)
• In 2000-01, the growth in cellular services is expected to be at around 100 per cent, due to a significant decline in airtime charges and prices of hand sets.
• During the 2000-01 period, growth rate in internet services is expected to be over 150 per cent, largely due to the high growth in demand for internet services. The growth in demand for Internet services could also be partly attributed to the significant decline in internet service charges.
• During the April-January 2000-01 period, significant policy decisions were taken
  • In August 2000, the Government announced the policy for the introduction of competition in the domestic long distance telecommunications segment.
  • In September 2000, the Government announced that competition would be introduced in the international voice telecommunications segment in 2002.
  • In October 2000, the erstwhile Department of Telecom Services was corporatised and incorporated as Bharat Sanchar Nigam Ltd.
  • The standard tariffs for basic services were reduced with effect from October 1, 2000, as per the second phase of tariff reductions ordered by the Telecom Regulatory Authority of India (TRAI).
  • In January 2001, guidelines for the entry of new basic service providers were announced. The Government also announced that fixed service providers would be permitted to provide mobile services within a local area. In addition, the licence conditions for a fourth cellular service provider in each service area, were also announced.

• A reduction in the customs duty on basic services equipment: The Association of Basic Telecom Operators has asked for a reduction in the basic customs duty on switches, cables and transmission equipment, from 20 per cent to 5 per cent; and on wireless in local loop handsets, from 25 per cent to 5 per cent. It has also asked for the restoration of concessional import duties on imports of digital loop carrier systems, synchronous digital hierarchy systems and wireless access systems. (These benefits to basic telecom operators were announced in the Union Budget 1999-2000, but were later withdrawn in May 1999.)
• A reduction in the customs duty on cellular handsets: The Cellular Operators Association of India (COAI) has asked for a reduction in the customs duty on cellular handsets, to nil. Reportedly, the Department of Telecommunications (DoT) has also asked for a reduction in the effective duty on cellular handsets, from 26.7 per cent to 19 per cent.
• Notification on telecom equipment imports: The COAI has asked for extending the validity period for concessional duty rates on project imports by cellular service providers, beyond March 2001. (The COAI has asked for a notification to be issued regarding the extension.)
• An increase in the flexibility in income tax benefits: The COAI has asked that cellular service providers should be allowed a 10 year tax holiday benefit, which is available to other infrastructure projects. (At present, cellular service providers are allowed a tax holiday of 5 years and a deduction of 30 per cent on the assessed income for a subsequent 5 year period). In addition, this benefit should be made effective from April 1996.
• A reduction in the customs duty on imports of internet access devices: The Internet Service Providers Association of India has asked for a reduction in the basic customs duty on all types of internet access devices, such as set top boxes, cable modems, dial-up modems and leased line modems, to 5 per cent or lower.

Telecom services: Number of subscribers

(Rs. million)	1999-2000	2000-01 E	Change
			(per cent)
Fixed services	26.6	32.4	21.6
BSNL/MTNL	26.5	32.1	21.1
Private service providers	0.1	0.3	114.3
Cellular services	1.9	3.7	97.3
BSNL/MTNL	0.0	0.0	-
Private service providers	1.9	3.7	96.8
Internet services	0.8	2.2	175.0
VSNL/BSNL/MTNL	0.4	0.7	75.0
Private service providers	0.4	1.5	275.0

E: Estimate
BSNL: Bharat Sanchar Nigam Ltd., MTNL: Mahanagar Telephone Nigam Ltd., VSNL: Videsh Sanchar Nigam Ltd.

Compiled by CRIS INFAC

Disclaimer: CRISIL has taken due care and caution in compiling this report. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of its web site.

Rediff-CRISIL Budget Impact Analysis

Budget 2001

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