Uncertainty grips telecom sector as budget nears, experts say

The Union budget to be presented by the government on February 1 may not be very eventful for the telecom sector. 

Although there was a hint in the air last year that the government would possibly host another spectrum auction in 2017, so as to help out the debt ridden sector, it does not seem like a possibility now.

No room for spectrum auction in budget 2017

“Telecoms have no more appetite for another spectrum auction as its balance sheets have already been stretched out. Besides the companies would want to monetize its recent spectrum purchases,” Zeebiz spoke to an analyst who did not want to be named.

Further he said, “The government currently owns only the 700 MHz band which was not demanded by the telecoms in the mega auction last year and will not see any bidding in possible.”

The price of the 700 Mhz band nearly killed the auction last time and telecoms were going in for the 1800 Mhz band rather than the 700 Mhz.

“No other demand is seen for the next two years for spectrum auction. Even if the government does host a spectrum auction in the next year it would just be a big disappointment as no one will bid for it,” he added.

Industry experts are mainly pegging another spectrum auction, if at all were to take place, would be in another six to eight months since the telecom companies are saddled with debt.

All eyes on GST

All eyes would be on declaration of Goods and Service Tax (GST) rates that could possibly garner a 15% or 18% tax rate for this sector.

Another industry analyst said, “Most of the budget revolves around service tax or excise duty imposed. With the levy of GST there is an uncertainty that prevails as we don’t know the exact tax that is to be levied. Currently the telecom industry is being taxed at 15.5%. Now we don’t know if the government will be levying an 18% charge directly or some tax amount in-between 15.5-18% till GST is finally implemented.”

“Telecom sector could spring positive with a 12% tax rate on service or have negative cues if it falls in the 18% slab,” the analysts said.

RJio does not ease up on telecoms

Whatever be the imposition of the tax, analysts said that the sector has headed for a negative impact with the new comer – Reliance Jio flashing discounts and offers.

“It would have a negative impact as with the new comer, Reliance Jio coming in with its free data and attractive schemes, the telecoms would not be able to handle it and end up charging its customers more. It would mean transferring the burden of service charge to the customers,” the analysts added.