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Telcos Seek Cut in Govt. Levies on 5G

India's top telecom companies have asked for a reduction in government levies to make up for the massive spends they're making on 5G rollout

India’s top telecom companies led by Reliance Jio and Bharti Airtel have asked the government for some support in terms of reduced levies to make-up for the massive investments that they’ve made for rolling out 5G networks. Given that the revenue streams are still not forthcoming, these companies believe the Center must step in with some discounts. 

The Cellular Operators Association of India (COAI), an apex body of India’s telecom industry, are seeking that the license fees be reduced from 3% to 1% and the universal service obligation levy of 5% be deferred till the Rs.64,774 lying in the fund gets exhausted. Market estimates say the telecom industry ended FY23 with debts of more than Rs.6.3 lakh crore. 

The deployment of 5G services across the country is moving at a rapid pace, but the revenues from the services can kick in only once the market matures, when use cases get established and with the enterprise uptake of the services are realized, says COAI director general S P Kochhar, according to a report published in the ET. 

Growth in investments not met by revenues

In spite of the huge debts, the telecom sector in India has pumped in massive investments in order to make the country have the fastest-ever rollout of 5G services, the official said adding that given if the government expects to reap the rewards of such networks in the digitization efforts, the financial relaxation and support is important at this juncture. 

India’s 5G rollout is being led by Reliance Jio and Bharti Airtel, both reportedly covering between 400 to 500 cities and towns each. The former spent more than Rs.88K crore while Airtel bought spectrum worth Rs.43K crore. Vodafone, which is facing its own financial challenges, also forked out Rs.19K crore for spectrum. 

Levies need to be rationalized now

Industry experts say that the big two players could be spending close to 95K crore and 66K crore respectively over the next five years for expanding the 5G network. This means that the need to rationalize levies are almost immediate in the light of investments that the sector requires, the experts say. 

Given the fact that the telecom industry in India attracts one of the highest taxes, with current levies ranging around the 30% of revenues mark. And once you add income tax, this number gets closer to 38%, which is among the most that telecom companies pay anywhere in the world for their services. 

The COAI officials said that in most countries, license fees are negligible or there is a one-time payment made upfront. However, in India things were already tough and now the GST credits accumulation has added to the working capital woes of the operators. With monetization options still not clear and use cases for 5G being developed, the telcos are voluntarily choosing to set lower tariffs in order to capture market share. 

Most 5G use cases that the telecom companies have come up with are not commercially relevant as of now, while at the same time a tariff rise is ruled out given that one of the three competitors in the game have deep pockets and can afford to refrain from one. Given this situation, only government handouts in the form of lower levies may work. 

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