Trai to push tax breaks for ISPs

Entertainment tax waiver on broadband; Five-year service tax holiday.

In an attempt to promote Internet and broadband services, the Telecom Regulatory Authority of India is set to recommend a slew of initiatives, including a five-year service tax holiday for Internet service providers (ISPs), a waiver of the entertainment tax on broadband subscription, removal of anti-dumping duty on recycled personal computers imported into India and 50 per cent reduction in income tax for web-hosting services for five years.

Trai has set a target of 18 million Internet users and 9 million broadband connections by 2007. The country now has 4 million Internet users and 125,000 broadband connections.

The Trai recommendations, expected to be announced later this week, are likely to push for unbundling of the last-mile local loop. This will enable smaller operators and ISPs to ride on Bharat Sanchar Nigam Ltd's (BSNL's) copper cable network to offer broadband services.

Trai, however, may restrict unbundling only on the existing copper network. This means that operators that lay copper or optic fibre cables after the recommendations are announced will not be required to unbundle their networks.

BSNL may object to this because it has the largest copper cable network while private operators, which are yet to lay their cables, will be exempt from unbundling.

However, the move aims at promoting new infrastructure even as it gives smaller operators a window to leverage the incumbent's national network.

Other recommendations include a 2 per cent reduction in licence fees for very small aperture terminal (V-SAT) and direct-to-home (DTH) television operators.

This will bring the licence fee paid by V-SAT operators on a par with cellular and basic service providers, which pay around 12 per cent of their annual revenue as licence fees.

Trai may suggest allowing ISPs with a DTH licence to allow downloading data with no clearance or permission required. Throughput restrictions on V-SAT for both uplink and downlink may also be removed.

Spectrum charges for the use of broadband and Internet services may also be brought down from 4 per cent to 1 per cent. Trai may suggest exempting DTH operators from paying the spectrum royalty fee when uplinking from India.

Trai is also expected to suggest delicensing of the 2.4 GHz, 2.48 GHz and 5.85 GHz frequency band, which will enable proliferation of wireless broadband services through technologies like wi-fi and wi-max.

In order to push the use of the National Internet Exchange of India (NIXI), Trai may suggest that bandwidth be made available to it at a 10 per cent discount.

In addition, the regulator may ask the government to subsidise the 20-50 per cent of the cost of leased lines used by NIXI in the first two years. The exchange, set up to drive down costs for ISPs in routing data traffic within India, has not taken off because major ISPs are staying away from it.

To give a boost to PC penetration in the country, Trai may suggest tax benefits on donated PCs and 100 per cent depreciation in the first year on a computer. At present, only 60 per cent depreciation is allowed.

Trai may also ask the Centre to issue a directive to state governments to conduct mapping for all new infrastructure and civic institutions to make it available on-line.

To promote usage at the customer level, the regulator is likely to suggest waiving the entertainment tax on broadband subscription.

Under Pressure

• Of the 550 ISP licences issued, only 190 are functional.
• The top four ISPs account for more than 80% of the total Internet subscriber base of 4 million.
• Only 125,000 subscribers have a broadband connection compared with five million users in South Korea.
• Internet penetration per 100 people is 0.4 in India compared with 58 in South Korea