Telecom Policy 2015: Collection of platitudes

Termed as landmark, says nothing on offering tax relief to sector

Faran Mahmood February 21, 2016
Termed as landmark, says nothing on offering tax relief to sector. PHOTO: FILE


The new telecom policy 2015 is another friendly reminder of how the government prides itself in dabbling on the lexicon of policy making.

The draft policy, hailed by the government as a ‘landmark’, is in fact a mushy collection of platitudes that talk about almost everything except its regressive tax policy and the practice of double taxation; especially on data services.

Telecom Policy 2015 termed positive development

These heavy taxes are a major burden on consumers, especially on low-income groups and if left unchecked, could seriously hamper growth in this sector.

Currently, consumers pay 20% GST and 14% withholding tax on mobile services whereas mobile operators pay a corporate tax of 32%, not to mention the additional tax imposed by provincial governments on broadband services. Operators also bear the burden of several other taxes, namely; the sales tax on issuance of SIM cards, the SIM activation tax of Rs250 and now the IMEI-tax for activation of handsets.

The new telecom policy is completely silent about offering any tax relief to the sector. It has not considered the request by cellular operators to grant them ‘industry’ status that could have reduced their net tax bill.

PTA’s proposed environmental regulatory role

The policy is also about further cementing the hegemony of PTA as it has been given the mandate to establish an environmental regulatory framework that would set targets for telecom operators. Recently, the National Assembly Standing Committee on IT and Telecom asked the PTA to push mobile operators for conversion of their base stations from generator to solar powered ones.

Overburdened: Telecom industry reeling from heavy taxes

It seems that lessons were not learnt from the case of installing solar powered lamp-posts on GT road where dust rendered most of them useless within a month. As a matter of fact, a dust layer of 4 grams / square metre reduces the efficiency of solar panel by approximately 40%, so forcibly switching to solar power for all mobile sites will not only be a half-baked solution, but it would rather become a part of the problem - leading to escalating operational and maintenance overhead costs.

USF to continue funding broadband rollout

Pakistan is rapidly losing the global race for high-speed broadband services especially in rural regions. In order to fix this market anomaly, billions have been disbursed from the Universal Service Fund to PTCL, Wateen and Telenor for introducing of data services to rural and economically less-developed areas. Telenor is the only mobile operator who has won three contracts from USF till date - giving it a unique competitive advantage over other operators.

Competition rules

Ministry of IT has expressed interest in developing separate competition rules for telecom companies with the continued commitment to encourage sustained foreign direct investments with up to 100% foreign equity.

There is an indication that the merger and acquisition rules would also be relaxed to allow further consolidation in the sector.

However, it appears that in the Mobilink-Warid merger deal, the regulator is not going to demand the new entity divest excess spectrum and infrastructure in order to ensure a level playing-field.

The network sharing agreement with Ufone would help it to reduce operating costs even more – boosting the group profits.

SBP blames taxes for low growth in broadband usage

Convergence between IT, telecommunications and broadcast media

The policy also calls for greater coordination between PTA and PEMRA to bridge communication gap in general and to enforce content regulatory measures in particular. Ministry of IT, however, has presented no strategic roadmap that charts out how to overcome the legal hurdles in this regard.

At present, this policy is only an expression of interest by PEMRA and PTA to do extensive legal studies for coming up with an actionable agenda.

Final word

Given the situation, it is hard to imagine a serious turnaround in the rollout of broadband services as long as the policymakers continue to milk the telecom cash cow.

Without reducing the ‘dead weight’ due to excessive taxation, the debate on telecommunication policy is a howling storm of misrepresentation.

The price wars in the prepaid segment and blocking millions of unverified SIMs have limited the organic growth prospects of average revenues per user (ARPU), as majority of consumers are low-valued prepaid users (97% in Pakistan vs. 79% in Malaysia).

Introduction of 3G data services helped to raise the blended ARPU but now this effect has been partially offset by a decrease in demand growth due to government’s tax on internet.

The writer is a Cambridge graduate and is working as a management consultant

Published in The Express Tribune, February 22nd,  2016.

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