New report cites India telecom sector challenges

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India’s telecom sector continues to suffer bottlenecks that are preventing it from growing to its full potential, according to a special report by Federation of Indian Chambers of Commerce and Industry and Ernst & Young.

With telephone-on-demand, 3G services and a subscriber base of 895 million customers, the Indian telecom sector has come a long way. The report highlighted the major challenges that the sector faces today, some of which were addressed in the recently released National Telecom Policy – 2011 (NTP – 2011) draft.

  • Unlike many countries where the allocation of spectrum is separate from the grant of license to provide service, in India licenses are still bundled with the allotment of a certain amount of spectrum. This has been addressed in the NTP – 2011, which seeks to separate the two.
  • Mobile phone services have witnessed phenomenal growth across India, but telecom manufacturing in the country has not kept pace, with only a few equipment manufacturers currently operating in the country. Most of the telecom equipment is imported as the country lags behind in terms of telecom R&D.
  • While the telecom sector is now seen as central and critical telecommunications infrastructure, it remains far from ubiquitous. There are huge gaps between the rural and urban areas, and specially the low-income or sparsely populated areas. This is due to the telecom companies viewing poor returns on the expensive investment that is required in setting up the infrastructure, the report states.

The report also highlights challenges faced by telecom infrastructure service providers.

  • One of the major challenge is the absence of a uniform approval process across the country for setting up telecom towers and other infrastructure.
  • Inadequate utilization of existing towers.
  • Multiple levies and high taxes on the set up of mobile towers.
  • A lack of reliable power for telecom towers and higher tariffs on telecom sites. This increases the dependence on diesel-fueled power sources, which is considered expensive and more harmful to the environment.

The report also states that the Indian telecom sector contributes significantly to the gross-domestic product of the country as well as tax revenues.

“According to TRAI, the operators pay up to 30% of their total revenues toward different levies, which is 23% to 25% higher than their counterparts in other Asian countries. This includes the uniform license fee, 5% levy for Universal Services Obligation Fund (USOF), Value Added Tax (VAT), custom duty and other taxes,” the study notes.

The report has outlined goals to be achieved under the “Connected India: Telecom mission 2020″ initiative, including:

  • To consider telecom infrastructure as critical infrastructure to accelerate the pace of growth of the sector.
  • To achieve 100% telecom coverage in the country by connecting all the unconnected areas. To reach overall wireless penetration of 110%.
  • Strengthening broadband penetration to achieve the target of 150 million users.
  • Earning revenues of around $60 billion.
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