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After navigating a tough year in increasingly challenging operating conditions, what lies ahead for the country’s telecommunications sector next year? As different sectors continue to undergo digital adoption and workflows modernize in some respects, that question is of critical nature, as the digital backbone of the economy is provided by telecom operators. While digital dependence has grown, it has also become easy to take broadband connectivity for granted when things are up and running all the time.

While the broader macroeconomic challenges are affecting all sectors (some much more than others), the authorities can take some steps to provide relief to the telecom sector by improving the regulatory environment in the coming year. The potential relief is inevitably fiscal in nature – including a reduction in withholding tax on prepaid account recharge, zeroing down the broadband tax, and reducing import duties on firm-level telecom equipment, apparatus, and other technology-related machinery.

Considering the fiscal crunch that is deepening by the day, the federal government is not expected to take such measures in the coming budget. Rather, there is a real worry that the telecoms-related taxes and duties will be further raised next year. If that happened, it would have negative consequences for the usage and uptake of mobile broadband, as the affordability of goods and services is becoming a big concern for businesses and low-income households in the current highly-inflationary environment.

In the interest of digital development and improving the quality of service, the recommendation to offer a new spectrum at reasonable prices has been made many times before. This is especially relevant in the current times of economic distress. The telecom sector FDI, which has been in the net-outflow territory, can be resuscitated by a reasonable spectrum auction next year. For some time, fresh investment inflows into the sector have been declining and divestment increasing. A spectrum auction can change that trend.

In addition, with speculation swirling around one of the operators packing its bags, a successful, large spectrum auction can give the government an economic vote of confidence. Already this year, capital expenditures by telecom operators have been much slower compared to recent years, indicating liquidity issues amid the rising cost of the business, steep cost of debt capital, and negative topline growth in real terms and foreign currencies. An accommodative spectrum auction can facilitate cases for higher investments.

Another area where the telecom sector can use some relief lies in regulatory easing in imports of mobile phones, telecom apparatus, backup power generation machinery, and other related goods. The administrative actions earlier this year to restrict machinery imports for different industries have paid dividends in the form of significant import compression, helping bring the current account deficit to a manageable level of about half a billion dollars per month. A job well done, from a monetary perspective!

However, in the process, operations of telecoms, just as other sectors that are heavily dependent on machinery imports, are said to be impacted. It is evident that it will be hard to phase out such import-related restrictions next year until the situation improves on the forex reserve count. Such economy-wide challenges may continue to impact telecoms next year as well. Still, there must be some sector-specific changes the authorities can make to improve the operating environment for telecom operators.

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Khan Dec 23, 2022 03:57pm
In the world of 5G, we do not even get smooth voice connectivity because the Govt won't sell spectrum at reasonable prices!
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