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Will Reducing Service Tax Improve India’s Broadband Base?

India’s Department of Telecom is looking to provide a 10 year tax holiday for telecom companies investing in rolling out infrastructure for broadband services, reports The Hindu. It has been recommended by the DoT to the Ministry of Finance, for the upcoming Budget (2013-14).

While this will help reduce the cost, we don’t it will encourage competition in a largely dormant Indian ISP ecosystem. There are a few points to consider:

– The cost of providing Internet services has actually increased for Internet Service Providers (ISPs), ever since the Indian government increased the license fee for ISPs to 8% of revenues. Around 500 ISPs have shut down and surrendered their licenses. The ISPAI President Rajesh Chharia had told MediaNama that policy is biased against Independent ISPs. MediaNama readers may recall that Tikona Digital Networks had shut down operations in 13 of 38 cities last month, while Qualcomm had received its ISP license in March 2012, after a 18-month delay.

Reliance Industries, yet to launch services through Infotel, will benefit if this policy is implemented, since it is planning a massive 4G services rollout.

– Indian law is particularly harsh on cybercafes, with increased monitoring and bureaucracy, harassment by the policy, which has led to cybercafes shutting down of Cybercafes, and hence a decrease in public infrastructure for Internet Access. There was a time when Internet Access was available publicly for Rs 10 per hour. Now it’s hard to spot a cybercafe.

– Right of Way is the biggest cost, and while reduction of service tax might help, what the government needs to do is unbundle the last mile and help increase competition between ISPs. BSNL and MTNL are companies which have no right to own what is effectively public infrastructure (built using public funds): that infrastructure should be public.

Apart from that, we wonder why this proposal should only be applicable to broadband, and why not mobile Internet data access over 2G networks as well.

Keep in mind that last year, the Indian government had removed the 10.3% service tax on Online Advertising (although it was applicable from July onwards, we later found out). Did that lead to an increase in Online Advertising?

India has only 14.8 million wireline broadband connections, and the government is yet to meet its 2010 target of 20 million broadband connections. The governments policy is clearly biased against wireline access. If reducing service tax on Internet connections while not addressing all the other systemic issues (right of way, unbundling, liberal cybercafe policy) is its idea of improving broadband connectivity, then the number of wireline connections will probably run out before we even near the 20 million mark. The government might take optical fibre to villages, but unless there is a competitive ISP ecosystem, wireline access will not improve in India.

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    © 2008-2018 Mixed Bag Media Pvt. Ltd. Developed By PixelVJ