Telcos in the budget

For the telecommunications industry, the FY14 federal budget seems no different than the one presented last year. Though the telecom operators are set to benefit from the one percentage point reduction in corporate tax rate, that measure is hardly telecom-specific.
As in previous budgets, the government has kept in place the excessive taxation regime on telecom subscribers who have been not only paying a higher GST rate of 19.5 percent (collected in FED mode) on service usage but are also subject to a 10 percent WHT on account recharge. Subscribers then pay more in FED as operators have been increasing their service charges and operational fees.
No different are the telecom-related pronouncements this year. The finance minister in his budget speech said that, "We will also strive to secure the payment of $800 million from the Etisalat that is due for more than five years." Due to rupee depreciation against dollar, Rs79.2 billion has been budgeted in FY14 under privatization proceeds due from Etisalat, compared to Rs74.4 billion budgeted last year.
The finance minister also promised to conduct a transparent auction of 3G telecom licenses. Interestingly, the auction is budgeted to yield Rs120 billion ($1.2 billion) in FY14, compared to Rs79 billion ($800 million) estimated for FY13, which couldn materialise.
The large increase in 3G-related budgetary estimates could either be because government is looking to sell 4, instead of 3 spectrum blocks; or it may be interested in selling one or two additional blocks for 4G networks, in line with its manifesto, according to a source.
In all, the government is expecting to mobilise two billion dollars from these two measures in FY14. While mutation of properties in PTCLs name remains incomplete and the Pak-UAE diplomatic parleys could potentially drag the release of withheld payments from Etisalat; the 3G auction process can be completed rather quickly, if the authorities concerned go about this business transparently and meticulously.
Telecom analysts and observers have pointed out that this budget had nothing new for the industry. One may differ by submitting that the industrys deregulated nature and its large private-sector-footprint makes it more dependent on policy frameworks rather than annual budgets.
There are reasons why! For telecom infrastructure development, there is the Universal Service Fund, a public-private partnership that doesn rely on PSDP funds but generates resources from within the various telecom segments. Similarly, there is a Research and Development Fund for taking the ICT industry to next level and localising mobile applications.
So, the budget may be relevant to the telecom industry to the extent of creating a viable business environment. But beyond that, the regulatory body has a major role, in facilitating the private sector players and challenging them to scale new heights. Therefore, strengthening the regulatory body is what the new government must focus on.
An independent regulatory body, manned with competent professionals, can deliver on much-delayed agenda items like 3G auction and revision of a decade-old policy framework. One hopes that the governments recently advertised recruitment posts for PTA are quickly filled up on merit so that pending matters receive attention and the industry can once again become a bastion of investment, growth and job-creation.