Taxes absorb 58% telco revenues in nation with lowest tariff: Voda-Idea CEO

Says operational cash generation can be released for investments if govt eases tax burden

Apart from having one of the highest incidences of visible levies in the world, Indian telcos have a large hidden cost, which results in 58 per cent of their revenues becoming liable for government taxes, Vodafone Idea chief executive officer (CEO) Akshaya Moondra has said.

Arguing that the industry needs to quickly make massive capital investments for migration of technology, he said the burden on the sector must be reduced fast.

“We have 18 per cent goods and services tax (GST) and 12 per cent licence fees and spectrum use charges. This 30 per cent is very visible to everyone. What is not visible is the price of spectrum, if converted to an annuity value and calculated as a percentage of revenue. It adds another 28 per cent of industry revenue (as a cost),” Moondra said. He was speaking at the CEOs conclave during the sixth India Mobile Congress.

“So, if you take the industry revenue of Rs 231 crore and you calculate the total value of spectrum given out — which is close to Rs 6 trillion today, the annuity value comes to 28 per cent of the revenue. This is on top of the visible costs. Therefore, 58 per cent of revenue is reflected as government levies in a country where the tariffs are the lowest,” he added.

Moondra said the operational cash generation of telcos can be released for investments if the government reduces the tax burden.

“With each transition of technology, especially from 4G to 5G, the data being carried by the networks is massive. This data cannot be carried wirelessly and you need fibre to carry it. Unfortunately, the right of way regulations in the country have been very difficult. The government has taken some steps towards rectifying that. But if 5G is to be successful in the country, it is very important that this right of way mess — which exists — is sorted out,” he added.

New opportunities

He added that 5G brings with it features like low latency, ultra-low latency, massive machine type communication and the ability to slice networks. “These will contribute to automating manufacturing in a manner, which was not possible earlier. Over the next 2-3 years, manufacturing, including internet-of-things, would be one of the key drivers of technology being deployed for the betterment of society, and improving efficiency and productivity,” Moondra said. Latency specifies the end-to-end communication delay, measuring the time between sending of a given piece of information and the corresponding response.

5G can reduce network latency. Latency can be identified in the time gap between the moment a “stop” button is clicked and the instance in which a remotely-driven vehicle actually starts braking. Experts say reducing the latency of end users from hundredths of a second to a few milliseconds can have an unexpected impact. It would lead to a real digital revolution.

Mysore Madhusudhan, executive vice-president, Collaboration and Connected Solutions, Tata Communications, said the massive level of investment expected in 5G is backed up by a number of established use cases.

Hefty burden

• Telcos have to pay 18 per cent GST on the supply of telecom services and products
• They pay 8% of their adjusted gross revenue as license fee
• Govt levies a further 3 per cent of adjusted gross revenue annually as spectrum usage charges
• Vi CEO said the annuity value of the price of spectrum adds another 28% of revenue as tax

“It could be a consumer or industry use case. But the business implications are massive. The buyer is going to be the strategic person. It (5G) is no more just a technological or IT-infrastructure conversation.

It is becoming part of the boardroom’s business strategy,” he said.

“4G deployment has grown from 9 per cent in 2016 to 68 per cent now. That is phenomenal — with a 15 times growth in data consumption.

Indians consume about 15 exabytes of data every month,” Salil Raje, SVP Data Center & Communications Group at American semiconductor producer AMD, said. One exabyte is 1 billion gigabytes.

He said India needs to pool in more talent into the hardware processing sector if it wants to expand its export from the sectors.

“We at AMD have 6,000-7,000 engineers in India, but we feel we need to bring in a lot more talent,” Raje said.

Some business leaders said newer networks that are programmable to use new opportunities for monetising 5G are the need of the hour.

“People are saying 5G represents big investments, but average revenue per user (ARPU) is south bound. But capital expenditure and operating expenditure are north bound. We need to get these curves going in the opposite direction,” Puneet Sethi, senior vice-president & general manager at American telecommunication software company Mavenir said.