DoT proposes tax breaks for 3G winners

26 Aug 2009, 0044 hrs IST, Kalyan Parbat & Joji Thomas Philip, ET Bureau at http://economictimes.indiatimes.com/DoT-proposes-tax-breaks-for-3G-winners/articleshow/4934677.cms.

KOLKATA: The Department of Telecommunications (DoT) will ask the empowered group of ministers (EGoM) on 3G-spectrum auction, headed by Finance minister Pranab Mukherjee, to consider a proposal under which successful bidders of pan-India 3G spectrum can enjoy tax benefits applicable under section 80-1A of the Income Tax Act.

The DoT’s rationale is that the 3G mobile broadband should be treated as a distinct infrastructure service and not continuity of telecom operations, especially in case of 2G service providers pitching for a pan-India 3G licence. The DoT will place the proposal during the second meeting of the EGoM scheduled for Thursday.

The proposal for tax benefits applicable under section 80-1A of the Income Tax Act is part of an internal note prepared by DoT that will be circulated to EGoM members, a senior DoT official told ET.

Currently, only telecom companies that kicked off operations between April 1, 1995 and March 31, 2000 enjoy income tax breaks under section 80-1A. If the EGoM were to accept the DoT proposal, it would imply that 3G operations of telecom companies will enjoy income tax breaks on 100% of their profits for initial five years. In the next five years, these telcos will enjoy a 30% tax break on their profits.

The DoT note to the EGoM also adds that Indian Space Research Organisation (ISRO) is of the view that it cannot spare any further airwaves for WiMax services. As reported by ET earlier this month, ISRO chief G Madhavan Nair had said that the Department of Space (DoS) has already parted with 40 MHz of airwaves for WiMax services in the 2.5 GHz band.

He said any interference from the WiMax services offered in this band in the future could “severely affect the very sensitive satellite services in the adjacent band”. Mr Nair had also added the DoS is now left with only 150 MHz of airwaves in the 2.5 GHz band, the bare minimum requirement for satellite services.

The DoT note to the EGoM was prepared by its joint secretary (T) and consists of demands from the industry, especially those of CDMA-based operators, and includes the views of the DoS on WiMax spectrum.

The EGoM is slated to settle all outstanding issues associated with the auction of 3G airwaves, vital for high-end services such as high-speed internet and video conferencing on mobiles.

It will take a final call on the reserve price for 3G and WiMAX spectrums and decide on the number of players to be allowed to offer these high-end services in each circle.

It is also learnt that the EGoM may also debate whether the government at all has the right to urge successful bidders of 3G spectrum to shell out an extra Rs 1,600 crore-plus for a separate pan-India UAS licence, especially when DoT knows only too well that there is no extra 4.4 MHz 2G spectrum available to bundle with new licences.

“At a time when the DoT’s wireless planning cell is well aware that it won’t be able to meet future 2G spectrum obligation for new UASL licencees, why should they be asked to shell out an extra Rs 1,600 crore plus full complement of the licence fees. While nothing has been finalised yet, a successful bidder of 3G spectrum, alternately, may also be asked to shell out a lower sum for a pure vanilla UASL without the bundled spectrum,” said a government official familiar with the matter.

Indications are that a section of E-GoM members are loathe to the idea of fixing the number of slots for 3G services to a maximum five (including BSNL) per service area. “Considering that, there are as many 11 to 9 slots available in some circles like Orissa and Madhya Pradesh, the E-GoM is likely to debate the rationale of uniformly restricting the number of slots (per circle) for delivery of 3G services. There is a feeling in the finance ministry that such restriction can tantamount to a loss of potential revenue for the government,” said a DoT official close to the developments.

Mittal, MTN chief meet Pranab, Khurshid to discuss merger

On 25 Aug 2009, 0720 hrs IST, ET Bureau at http://economictimes.indiatimes.com/Mittal-MTN-chief-meet-Pranab-Khurshid-to-discuss-merger/articleshow/4931103.cms

NEW DELHI: Bharti group chairman Sunil Mittal and South African company MTN’s chief executive Phuthuma Nhleko met finance minister Pranab Mukherjee and minister of state for corporate affairs Salman Khurshid on Monday, triggering speculation about the motive for the meeting days after the merger partners extended exclusive talks for their proposed $23-billion deal.

The meeting with the finance minister comes just three days after both the telcos extended their exclusive merger talks by another month to September-end.

Mr Khurshid said the meeting was just a courtesy call by the honchos to appraise the ministry on the merger talks. Terming the proposed deal as a very big opportunity for the country, he said: “They are in touch with the regulators and the finance ministry. Our (ministry of corporate affairs) role comes at a later stage.”

The nature of the discussions with Mr Mukherjee was not disclosed and both Mr Mittal and Mr Nhleko could not be contacted on this issue. Mr Mukherjee was not available for comments. Officials at the ministry, too, declined to disclose the agenda for the meeting.

The largest telcos in India and Africa have been involved in exclusive talks for close to three months to create the world’s third-largest communications firm. The deal’s contours present a complex structure in which both firms would pay cash and equity for stakes in each other. If the deal goes through, Bharti Airtel will get 49% in MTN and the South African telco and its shareholders will get 36% economic interest in Bharti.

Industry analysts say the most probable reason for the highest ranking executives from both the companies meeting the finance minister could be related to the country’s foreign investment cap of 74% in telecom firms. It is also possible that Mr Mittal and Mr Nhleko could have updated the finance minister on the talks between the companies.
The new FDI norms consider a company Indian if Indian promoters hold a majority stake in it and the investments made by such companies in any joint venture or downstream venture will be treated as Indian.

Bharti Airtel, which had close to 70% foreign equity as per the old guidelines, has only about 43% FDI under the new norms. This is because a significant part of the Singapore-based telco SingTel’s 31% holding in the company as well as Vodafone’s entire holdings are routed through majority-owned Indian companies. Even after the deal, the emerging entity will, therefore, have FDI within the prescribed limit.

Despite this, approval from Indian regulators and the government may still turn out to be a tricky issue. RBI has asked the department of economic affairs under the finance ministry to review the new FDI guidelines. Any changes in the FDI norms could force both the companies to restructure the deal. Besides, the foreign investment promotion board, the apex body that clears foreign investments, has not cleared any proposals so far under the new norms due to opposition from the finance ministry.

Analysts, therefore, speculate that the honchos may have sought clarity from Mr Mukherjee regarding the government’s position on the new FDI norms. They feel that the meeting with Mr Khurshid could be related to Bharti’s plans to issue GDRs to MTN shareholders.

The Indian telco’s equity expansion will only be in the form of GDRs that will be listed on the Johannesburg Stock Exchange. This means, MTN’s proposed 36% holding in Bharti Airtel — 25% with the company and the rest with its shareholders — would be in the form of GDRs listed on JSE.

All regulations related to GDRs are governed by the ministry of corporate affairs. Post the deal, both the telcos will have to get a formal approval from markets regulator Sebi, exempting the South African firm from making an open offer for an additional 20% in the Indian company.

The Hindu Business Line : I&B Ministry moots five-year tax break for digital TV services

via The Hindu Business Line : I&B Ministry moots five-year tax break for digital TV services on June 19, 2009

Our Bureau

New Delhi, June 18 The Ministry of Information and Broadcasting has suggested a five-year tax holiday for those offering digital television services.

The Minister, Ms Ambika Soni, met the Minister of Finance, Mr Pranab Mukherjee, with the I&B’s budget proposals.

The Ministry is suggesting the tax holiday for digital cable, direct to home, satellite-based cable Headend in the Sky (HITS) and similar service providers distributing digital content. They could be taxed for 30 per cent of their profits for the following five assessment years in a block of 15 years, suggest the Ministry.

The Ministry has also asked for the fringe benefit tax (FBT), currently at 20 per cent, to be reduced to five per cent for both print and electronic media, and an exemption from FBT for the film industry.

Service tax of around, 12 per cent, applicable on advertising revenue of television broadcasters should also be exempt,

Ms Soni told Mr Mukherjee, bringing them at par with the print media which enjoys this exemption.

For newspapers, the I&B Ministry would like the government to waive the levy of service tax on road and rail haulage for imported newsprint.

Ms Soni has also asked service tax, entertainment tax and value added tax to be replaced by unified single Goods and Servi

The Hindu Business Line : 3G auctions within 72 days of resolving pricing issue: DoT

via The Hindu Business Line : 3G auctions within 72 days of resolving pricing issue: DoT on June 18, 2009

Thomas K. Thomas

New Delhi, June 17

The Department of Telecom proposes to conduct auctions for third generation services spectrum within 72 days of resolving its differences with the Finance Ministry over pricing.

This was mentioned by the DoT in a recent presentation to high ranking government officials. However, the DoT will have to iron out the differences with the Finance Ministry first before it can set a date for the auctions.

Telecom Ministry officials said that expect the auctions to take place by September assuming that the policy issues are resolved.

Two issues

The DoT and the Finance Ministry differ primarily on two issues. One relates to the base price, with the Finance Ministry wanting it pegged at Rs 4,040 crore. The DoT wants it to be between Rs 2,020 crore and Rs 3,500 crore to keep the spectrum affordable.

The other difference is the number of slots to be auctioned. While the DoT wants eight operators to be given 3G spectrum, the Finance Ministry favours five.

The DoT officials said that the issues will be resolved since the Prime Minister has included the auction of 3G and broadband spectrum in his agenda for the first 100 days.

Sources said that another round of meeting between the Union Telecom Minister, Mr A. Raja, and the Finance Minister, Mr Pranab Mukherjee, will take place to arrive at a resolution.

The DoT officials said the issues will be sorted out before the Budget is presented.

DoT seeks Rs 3000 cr support for BSNL- Telecom-News By Industry-News-The Economic Times

17 Jun 2009, 0302 hrs IST, Joji Thomas Philip, ET Bureau

NEW DELHI: The communications ministry has sought an allotment of Rs 3,000 crore from the finance ministry for supporting BSNL’s wireline networks that were set up before April 2002. The DoT wants the amount to be sanctioned in the budget.

This is to compensate the state-owned telco for losses during the last fiscal after telecom regulator Trai had done away with access deficit charge regime from April 1, 2008. Prior to that, all telcos were paying 0.75% of total revenues towards ADC, which was used to support BSNL’s unviable fixedline operations in rural India. In 2007-08, BSNL got Rs 2,000 crore as ADC.

But, when hanging up on ADC, the regulator in a bid to address the concerns of BSNL , which had warned that it would be forced to discontinue all its rural fixed-line operations if the levy were to go, recommended that the government give it a subsidy of Rs 2,000 crore per annum for the next three years from the Universal Obligation Fund (USOF).

All telcos pay 5% of total revenues towards the USOF, which is dedicated to improving communication facilities in rural India. Unutilised amount in the USOF is at over Rs 20,000 crore. In March 2009, BSNL and DoT had signed an MoU to provide the state-owned operator a subsidy of Rs 6,000 core over the next three years from this fund to sustain its rural operations.

In fact, BSNL had even dragged the regulator to the telecom tribunal, but the latter refused to issue a stay on the matter. Trai had however, justified its move to do away with the ADC regime on the grounds that the total support provided to BSNL over the last couple of years under various initiatives which includes reimbursement of licence fee and spectrum charges, moratorium on payment of interest, support from Universal Service Obligation Fund(USOF), ADC funding and exemption on entry fee was about $8 billion (Rs 31,500 crore), while adding that the PSU cannot be supported in perpetuity.

In a bid to give further relief to BSNL, last year, DoT also exempted telcos from paying licence fee on fixedline telephony from licence fee enabling the state-owned operator to save Rs 1,200 crore annually.

via DoT seeks Rs 3000 cr support for BSNL- Telecom-News By Industry-News-The Economic Times.

Telcos’ wait for airwaves gets longer

17 Jun 2009, 0702 hrs IST, Joji Thomas Philip & Sandeep Gurumurthi, ET Now

The wait for additional airwaves, key for mobile operators to expand their customer base, has just got longer, with the telecom ministry deciding to make any decision on this only after the upcoming auction of third-generation spectrum, according to a top official in the department of telecom (DoT).

Communications minister A Raja and Finance Minister Pranab Mukherjee met twice on Tuesday, but were unable to reach a consensus on key issues related to 3G auctions such as the base price for these radio frequencies as well as the number of players to be allowed to offer these high-end services.

“No consensus as of now on the base price. We discussed various suggestions — whether we should go for uniform base price or opt for differential pricing, according to circle, depending upon commercial viability of that area,” Mr Raja told reporters after his second meeting with Mr Mukherjee.

As a fallout, the telecom ministry has decided that it will take a call on all issues related with second-generation spectrum, the airwaves on which all mobile services are offered at present, including the methodology for future allocations, the pricing for this scarce resource and the usage charges for utilising these airwaves only after the upcoming auctions of third generation spectrum, the official said on condition of anonymity.

The ministries are divided over the base price for the 3G auctions with DoT proposing a reserve price of Rs 2,020 crore for pan-India 3G spectrum and the finance ministry wanting it to be doubled. DoT has said it is open to hiking the reserve price to Rs 3,540 crore as a compromise.

The two ministers said for the first time that they were willing to look at a differential pricing formula to arrive at a base price for 3G auctions, vital for high-end services such as video conferencing and high-speed internet on the mobiles.

Industry analysts, however, say using a new formula to arrive at differential pricing for each circle will be a time-consuming process that will further delay the 3G auctions.

The development implies that existing telcos will not get 2G spectrum till the issue is settled. Now, they will have to invest heavily on infrastructure to ensure that the quality of services do not deteriorate.

At present, all telecom services are offered on 2G spectrum and these airwaves have been given to telcos based on their subscriber numbers. Put simply, additional radio frequencies are dished out as telcos as they add more subscribers. Currently, India follows a controversial practice of allocating spectrum based on companies’ subscriber base, and is the only country in the world that follows this method.

There are two key factors that have led to the communications ministry deciding to stop all 2G allocations until the completion of 3G auctions.

First, the spectrum panel in its report submitted last month had said the country should adopt the internationally-accepted auction system for issuing additional 2G airwaves to telcos. This committee, consisting of academicians, industry representatives, government officers and industry representatives, had suggested that the 2G pricing be market-linked and be related to the auction price of 3G spectrum.

Second, the committee had also suggested that all telcos who hold radio frequencies beyond the 6.2 MHz mark be charged a one-time fee for all the extra radio frequencies they hold, while adding that this one-time fee be calculated based on the 3G auction price.

The communications ministry can act on these recommendations only after the 3G auctions take place.

The larger implication is that all telcos will have to shell out huge amounts, both for the excess 2G radio frequencies they hold as well as for all additional allocations in the future.

Additionally, DoT’s move to freeze all 2G allocations is also set to impact all telcos. For instance, India’s largest telco, Bharti Airtel, is awaiting additional spectrum allotment of 1 MHz each in five circles.

Reliance Communications, which has start-up spectrum in all 22 circles in the country, is now eligible for the next tranche in six circles as it has reached the prescribed subscriber numbers in these areas. Other telcos such as Vodafone Essar and Idea Cellular too are awaiting additional spectrum in several circles.

With no airwaves allotments over the next couple of months, these operators will have to spend significant amounts in setting up new cellsites. Analysts say for most operators, it is, therefore, a tradeoff between increased capex and allowing the quality of services to deteriorate on account of the spectrum crunch.

This is because it is technically possible to have increased number of subscribers using the same amount of radio frequencies, provided operators spend significant amounts in building more base stations and subscribing to the latest technological innovations.

It is not just the large players that are impacted by the latest policy logjam. The government’s move to put all allocations on hold will also pinch small players and new entrants like Datacom, Unitech Wireless

and Swan Telecom, who are awaiting start-up spectrum in many regions.

Raja expects minimum Rs 25,000 cr from 3G, BWA spectrum bids- Telecom-News By Industry-News-The Economic Times

Raja expects minimum Rs 25,000 cr from 3G, BWA spectrum bids

From http://www.economictimes.com on 16 Jun 2009, 1617 hrs IST, PTI

NEW DELHI: Telecom Minister A Raja on Tuesday said that he expects revenue of at least Rs 25,000 crore from the auction of radio waves for third generation (3G) mobile, broadband and wireless services.

Raja, who met Finance Minister Pranab Mukherjee, said his department had assured the government of an early service rollout.

“In connection with the 3G and WiMAX auctions, we assured (the Finance Minister) of an early rollout, an early auction and more revenue for the government,” Raja told reporters after meeting Mukherjee earlier today.

Raja’s estimate is lower than what (Rs 30,000 crore) the government had forecast last year when the 3G auction process was announced.

Raja meets Mukherjee again in the evening seeking clarity on the number of licences to be auctioned and the reserve price to be set. DoT officials will also be there to discuss the issue with their counterparts in the Finance Ministry.

DoT plans to auction frequency for 20 of India’s 22 telecom service areas. The exercise has been delayed after the Finance Ministry suggested that the starting auction price of Rs 2,020 crore be doubled.

via Raja expects minimum Rs 25,000 cr from 3G, BWA spectrum bids- Telecom-News By Industry-News-The Economic Times.

BSNL staff unions ask telco to act against Nokia Siemens

9 Jun 2009, 0208 hrs IST, Joji Thomas Philip, ET Bureau

NEW DELHI: The umbrella body representing all employee unions of BSNL, the country’s largest telco by revenues, on Monday asked the telco’s management to act against global networks major Nokia Siemens Networks (NSN) for ‘delaying BSNL’s expansion plans’.

This comes as Nokia Siemens had gone to courts challenging BSNL’s decision to disqualify the company’s bid for 93 million GSM lines on technical grounds. NSN had first approached the Delhi High Court seeking a stay on BSNL network contracts worth $6 billion that were awarded to Sweden’s Ericsson and China’s Huawei, but its petition was dismissed on grounds of jurisdiction. Following this, NSN had approached the regional high courts in Chandigarh and Hyderabad.

Responding to NSN’s petition, the Andhra Pradesh High Court ordered status quo on the tendering process in the south zone – the court also asked BSNL not to proceed with finalisation of the tender for the south zone until further orders.

“We have told BSNL management that the company should take action against such vendors that hold up BSNL’s expansion plans. These vendors never go to court when private operators reject their equipment. BSNL already faces a severe capacity crunch and any further delay in awarding the contracts will lead to the company not being able to compete with private operators,” the secretary general of the BSNL employee unions, VAN Namboodiri told ET.

The employee unions, in a communication to the BSNL management, also pointed out that while the government and security agencies had raised objections to BSNL awarding contracts to Chinese equipment major Huawei, similar concerns were not raised when private telcos purchased equipment from the Chinese vendors.

“We have no doubt that this (NSN going to courts and government raising objections to Huawei) is a conspiracy between the private telcos and private suppliers, as also certain forces within the government to weaken and reduce BSNL and privatise it gradually so that there will no public sector to compete with the private sector, which will enable them to increase the charges without any restraint and control,” the employee unions added in their communication to the government.

Highlighting a conspiracy angle, Mr VAN Namboodiri added that Motorola had filed a similar petition in the Delhi High Court in 2006, which delayed BSNL’s expansion plans by about a year, ‘during which period BSNL lost its first position in total connections and came down to fourth position in mobile services’. Motorola later withdrew the case.

Nokia Siemens on its part maintains that BSNL had disqualified the telco without providing any reasons. NSN in its earlier communication to the Central Vigilance Commission (CVC) pointed out that it had furnished all clarifications, details and explanations, along with additional customer reference certificates as desired by BSNL and was therefore confident of meeting all the technical requirements.

“We are fully confident that we meet the requirements as desired by BSNL. Even if the BSNL evaluation team feels that there are any shortcomings in our furnished responses, we should be given an additional chance for submission/explanation,” NSN had told the CVC. NSN has also added that since only a single bidder has been short listed for each of the four zones, BSNL would ‘be deprived the benefits of competitive bidding’.

Similarly, in the Delhi High Court, NSN had alleged that BSNL shortlisted Huawei despite security concerns regarding it being a Chinese company. But BSNL executives maintained that they had opened the bids only after getting security clearance to award telecom equipment contract to Huawei. Last month, security agencies had allowed BSNL to give contracts to Huawei only in the southern states as this region does not share sensitive borders with Pakistan, China and Bangladesh.

Vodafone’s towering plans stuck

9 Jun 2009, 0019 hrs IST, Joji Thomas Philip, ET Bureau

NEW DELHI: Vodafone Essar’s plan to hive off its signal towers and telecom network-related infrastructure arm to companies in Mauritius has run into rough weather for the second time after a government agency flagged the vexed issue of using a tax haven for such deals.

The Department of International Taxation (DIT) in Mumbai, the government agency that examines cross-border deals, has said in its interim report that the Vodafone Essar plan seeks to route funds in a way to take advantage of the India–Mauritius Double Taxation  Avoidance Agreement (DTAA).

According to the provisions of DTAA, Mauritius-based entities are exempt from paying capital gains tax in both countries.

After DIT’s interim report, the Foreign Investment Promotion Board (FIPB) has yet again deferred Vodafone Essar’s proposal on Ortus Infratel and Holdings.

This is the second time a government agency has opposed Vodafone Essar’s plan. In April, the revenue department under the finance ministry had said the proposed investment in the new company through Mauritius would result in ‘round tripping’.

The revenue department had referred the matter to DIT, which has again stated in its interim report that ‘the possibility of round tripping cannot be eliminated’.

In response to a detailed query sent by ET, Vodafone said the company cannot comment on the observations of either DIT or the revenue department.

In its interim report to FIPB, DIT has said the two Mauritius entities were mere holding companies with a share capital of just $100. It added that the telco has not furnished the source of funds for both Vodafone Tower and Essar Infratel despite repeated reminders. But a person close to Vodafone Essar, who wished to remain anonymous, said the source of funds for both these companies have been provided to DIT.