New Delhi: The department of telecommunications (DoT) is considering including telecom infrastructure providers such as phone tower firms under a new uniform licence fee regime, according to three senior officials of the department. The move could mean the government gets 9% of the revenue of such firms under a revenue share agreement.
Tower firms, which hold what is called an IP-2, or infrastructure provider-second tier, licence, currently do not pay any licence fee.
If a decision is taken to levy licence fees on the firms—at a flat 9% of adjusted gross revenues (AGR—gross revenues net of expenses such as interconnection charges between phone networks and service tax) as is being proposed by an internal committee at DoT—the impact would not be just on the profitability of the tower firms, but also on consolidated earnings at firms such as Bharti Airtel Ltd, Reliance Communications Ltd and Idea Cellular Ltd, all three of which have spun off fully or partly their tower assets.
A final decision will be taken by the end of this month.
Such spun-off tower firms then rent out their infrastructure to phone firms on the lookout for towers to mount radios on to expand their network coverage. Since one tower can mount up to four radios—more in case of specially-designed towers—it helps reduce costs at the phone firms.
Specialist tower firms include market leader Indus Towers Ltd—a joint venture of Bharti Airtel, Vodafone Essar Ltd and Idea Cellular—or wholly-owned tower units such as Bharti Infratel Ltd and Reliance Infratel Ltd. Vodafone Essar and Idea Cellular are also spinning off some of their tower assets into separate specialist units.
DoT is justifying the move to levy a licence fee on tower firms because the towers fell under the ambit of phone licences before such infrastructure was hived off.
“There are a number of licences that come under the purview of DoT, including UAS (unified access service) licence, which is used by all private telecom operators to offer wireless and fixed line telephony. There are also the NLD and ILD licences (for international and national long distance telephony) as well as the ISP (Internet service provider) licences required to provide Internet access. The committee is looking at all these licences and examining which of them can be included in the uniform fee regime and which cannot be,” said a senior DoT official who is a member of the committee looking into the uniform fee regime.
He asked not to be identified since he is not authorized to speak to the media.
DoT plans to move to a uniform licence fee regime that will replace a graded structure currently in place, where the revenue share varies depending on service offered and service area (commonly referred to as circles in India).
Services such as Internet access are levied fees at 6% of AGR, while mobile phone services entail payment of up to 10% of such revenues.
Such fees include a five percentage point charge on AGR contributed towards a universal obligation fund, aimed at aiding roll-out of phone networks into rural areas.
A member of the Telecom Commission, the apex body at DoT, reasoned that if the phone firms had kept their tower assets in house and rented it out to others, they would have had to pay a licence levy on such revenues to the government. This official, too, didn’t want to be identified
According to the department’s estimates, there are at least 314,000 phone towers in India, most of which (293,000) are owned by private phone firms.
Business research firm Netscribes Inc. estimated in May that operating profits at tower companies can range between 46% and 80% depending on the number of tenants—ranging from one to four—that a tower company has. But given the heavy capital spending in the business, interest and depreciation charges are high, resulting in low net profit margins.
Estimates for industrywide revenues at tower firms were not immediately available, but Mumbai brokerage firm Kisan Ratilal Choksey Shares and Securities Pvt. Ltd estimates that Indus Towers will make Rs4,460 crore in revenue this fiscal year. Based on Indus Towers’ market share of some 32% by number of towers in the country, and assuming an equal revenue per tower for its peers, the industry’s revenue works out to some Rs14,000 crore.
By that calculation, at a 9% licence fee levy, the government could immediately make Rs1,260 crore in licence fees in the current fiscal year itself.
Tower firm executives were critical of the DoT plan.
“The decision to outsource the tower business is taken independently by the operator, and only affects its internal cost structures, not the revenues gained from the subscribers. Understanding this, it is not appropriate to charge the licence fee from the tower companies,” said Amit Sharma, executive vice-president and president for Asia at American Tower Corp.
“For instance, if an operator outsources its (information technology, or IT) business, the licence fee will not be charged to the IT service provider. This is a similar kind of outsourcing.”