The Indian telecom industry has continued with its strong subscriber additions during the current year. At the end of January 2010, the total subscriber base stood at nearly 582 m, of which wireless subscribers contributed to nearly 94%. During March 2009, this figure had stood at about 429 m. The key reason for such a growth in subscriber base has been the affordability factor. With many new entrants launching services in India, competition has reached unprecedented levels. The new entrants have resorted to offer very attractive schemes in attempt to grab their share of the overall market. While companies all across have been able to add subscribers to their base, the benefits of the same have not really been reflected in their financial performances. This is on the back of a sharp decline in tariffs.
Budget Measures
The allocation for National Rural Employment Guarantee Scheme (NREGS) has been marginally increased to Rs 401 bn for FY11 as compared to Rs 391 bn last year.
Full exemption of the countervailing duty (CVD) of 4% on accessories, parts and components imported for the manufacture of mobile phones has been extended for the full year. Plus, this exemption has been extended towards battery chargers and hands-free headphones as well.
Excise duty exemption on parts, components and accessories of mobile handsets including cellular phones has been extended to battery chargers and hands-free headphones as well.
Mobile phones imported in pre-packaged form and intended for retail sale are being provided an outright exemption from additional duty of customs of 4%.
Increase in the rate of Minimum Alternate Tax (MAT) from 15% to 18% of book profits.
Surcharge on domestic companies reduced to 7.5% from 10%.
Budget Impact
Increase in allocation for the NREGS will help in targeting more customers in the rural areas.
Lower CVD on accessories, parts and components will help in keeping the cost of handsets low.
Imported mobile phones would become cheaper leading to increased affordability in urban and semi-urban regions as well.
The increased MAT rate would impact the bottomline of telecom operators.
Company Impact
Considering many new players have launched mobile services in India, the incumbents are looking at targeting smaller town and villages for maintain their leadership position in terms of revenues and subscriber growth. Companies such as Bharti Airtel, Reliance Communication and Idea Cellular, which are present across India with a good distribution network, would be the key beneficiaries.
With the government aiming at improving the amount of disposable income in the hands of the people, it would help the telcos.
Telecom companies would be able to enjoy the benefits of low cost handsets as it would help in keeping the strong pace of subscriber additions buoyant. This would hold strong for rural markets.
Increase in MAT to impact profits of Bharti Airtel and Reliance Communications.
The Indian telecom industry has continued with its strong subscriber additions during the current year. At the end of January 2010, the total subscriber base stood at nearly 582 m, of which wireless subscribers contributed to nearly 94%. During March 2009, this figure had stood at about 429 m. The key reason for such a growth in subscriber base has been the affordability factor. With many new entrants launching services in India, competition has reached unprecedented levels. The new entrants have resorted to offer very attractive schemes in attempt to grab their share of the overall market. While companies all across have been able to add subscribers to their base, the benefits of the same have not really been reflected in their financial performances. This is on the back of a sharp decline in tariffs.