Bharti Infratel could not have asked for a better omen ahead of its IPO. Telecom minister Kapil Sibal has announced giving infrastructure status to telecom tower companies. The move is expected to bring in much needed relief for other players in the sector like Indus Towers and Reliance Infratel.
An infrastructure status means that companies will be able to get the benefit of accelerated depreciation, which would act as an incentive for further investment. Among the other benefits that come with the tag are higher limits for external commercial borrowing, lower import duties, exemptions on excise duty on telecom infrastructure equipment and most importantly these companies will now be eligible for viability gap funding.
Telecom has been one of the biggest success stories from India, though telcos were asking for infrastructure status, government has rightly identified only the tower companies for granting the status. Telecom towers form the backbone on which telecom players are able to provide services. Giving telecom companies infrastructure status at a time when regulatory issues are still being sorted out would have sent wrong signal in the market.
However, it needs to be pointed out that it would have made more sense had infrastructure status been given to the sector earlier. Giving infrastructure status to an industry that is already matured and has already incurred most of the setting up cost across the country makes little sense. Though Bharti Infratel mentions that it needs funds to set up more towers, most of the towers are already operational. Further, the assets are already well-depreciated as they are generally charged at a rate between 5-9.5 per cent per year, depending on the useful life classified by each company.
Why then has the government granted an infrastructure status to a developed sector? In a season of scams, one is forced to think, is it being done to favour a particular player? Only one player planning a huge roll-out of this infrastructure across the country comes to mind. The sector is heating up once again.
