Telecom Sector: Tangled Wires, Wranglings Put Off Private

The 1994 telecom policy injected a liberal spirit but failed to enthuse the telecom sector as expected. The private sector participation in telecommunications has yet to pick up tempo.

The bureaucratic wrangles and political wrong doings have unnerved the private sector. The result is even a simple goal of a telephone connection on demand by 1997 is far from realised.

The reason is the telecom sector requires massive investment. That is why the Telecom Equipment Manufacturers Association of India (TEMA), as part of its pre-Budget memorandum, has called for the creation of a corpus for funding the local telecom industry.

 

TEMA has also asked for a reduction in the corporate tax to 30 per cent from 40 per cent as well as exemption in service tax to spur foreign investment in this sector.

The governments latest policy measures may alter the scenario for the better to an extent. Telecom has been classified as an infrastructure service.

It has been entitled to a five-year tax holiday for projects and a 25 per cent import duty on equipment imports is expected to help the telecom PSUs.

The Rs 7,800 crore strong telecom manufacturing industry in 1995-96 grew three times from Rs 2,600 crore in 1991-92 annual average growth of 50 per cent. However, growth may suffer in 1996-97 owing to the tariff structure announced in the 1996-97 Budget.

The budget slashed custom duty on parts and sub-assemblies of telecommunication equipment from 35 per cent to 30 per cent and on finished equipment from 50 per cent to 40 per cent and on cellular phones, pagers and trunking handsets to 30 per cent.

The measure was intended to check smuggling but added to the competitive pressure.

An estimated investment of Rs 5,000 crore in the telecom manufacturing industry is not being utilised properly. Tardy pace of clearance of tenders has added to the woes of the manufacturers even as the installed capacities lie unutilised.

In the first half of 1996-97, 10 telecom majors in the private sector turned in a modest performance. This was marked by intense competition from the multinational companies which led to lower prices of equipment. The reduction in import duty on telecom equipment in the last Budget also affected their margins in the first half of 1996-97.

Ten telecom companies managed to increase sales income by 18.4 per cent to Rs 506.3 crore (Rs 427.5 crore) in the first half ended September,1996.

Their operating profit rose to Rs 96.8 crore (Rs 83.3 crore) up16.3 per cent. Gross profit declined 17.3 per cent to Rs 49.8 crore (Rs 60.2 crore) and net profit by 29.6 per cent to Rs 29.5 crore (Rs 41.8 crore).

In the first half of 1996-97 , their operating profit margins declined to 19.1 per cent (19.5 per cent), gross profit margin to 9.8 per cent (14.1 per cent) and net profit margin to 5.8 per cent (9.8 per cent).

ITI , the public sector company, disinvested 22 per cent of its equity holding to financial institutions, banks, mutual funds and employees. Sales income of the company increased by 4 per cent to Rs 279 crore (Rs 268 crore). Net loss of the company in the first half of 1996-97 fell marginally to Rs 117.5 crore (Rs 118 crore).

The issue of raising resources has engaged the attention of The India Infrastructure Report ( the Rakesh Mohan Committee Report ). It has taken a long term view of the growth of the telecom sector. It feels the government should not view it as an opportunity area for generating additional resources. The recommendation makes some sense but in the light of the progress of the telecom sector in recent times a lot needs to be done in as quick a time as possible.

This is because telecom services show a growing lag between demand and supply in both basic and cellular segments.

The waiting list has far from vanished. The current basic services network of the Department of Telecommunications (DoT) is around 12.2 million subscribers, with another 2.1 million on the waiting list.

Demand is expected to rise to 31 million lines by 2001 and 64 million by 2006. The provision of basic and cellular services of this order by 2006 needs Rs 1,915 billion. The private sector is expected to contribute Rs 1,020 billion based on current prices and duty structures. In addition to this , funds are required for value-added services such as e-mail and setting up of capacities for manufacturing telecom equipment. The current investment in the sector is Rs 101 billion (average per annum during the Eighth Plan). It may rise to Rs 153 billion in 2001 and Rs 312 billion in 2006.

The government has recently fixed certain norms to improve the telecom services throughout the country.

These norms include local shift within seven days, inter exchange shift within 15 days, inter state shift within 30 days, fault clearance within 48 hours and new telephone connections within 15 days.

The waiting list of telephone connections in urban areas came down in 1995-96. For example the waiting list in Delhi as on March, 1996 was nine thousand down from 1.3 lakh as on March, 1995, in Mumbai 10,572 (50,039) , Calcutta 47,588 (52,393 ) and in Chennai 83,187 (85,743). Capacity utilisation of telephone exchanges fell from 81.9 per cent in 1993-94 to 81.5 per cent in 1994-95 but improved to 81.9 per cent in 1995-96.

A lot needs to be done to tone up telecom network in rural areas. The Eighth Plan target of providing telecom connections to 3.38 lakh villages with at least one public telephone, covered only 1.58 lakh villages -a shortfall of 53.3 per cent.

The Indian telecom sector has yet to untangle itself from the labyrinthine procedural wranglings. Foreign players feel put off. The inflow of technology will increase when bureaucratic blues decline. The ground is being cleared to spur foreign companies to set up manufacturing unit.