Telecom industry can now eye more rural customers

While other sectors were facing the brunt of the economic slowdown over the last year, the Indian telecom industry managed to buck the trend by witnessing strong addition in subscriber base, month after month. The sector added more than 140 m wireless subscribers during twelve months ending May 2009.

In fact, India has now become the third largest telephone market and the second largest wireless market in the world. The industry has set out to target 500 m connections by 2010 and touch 600 m subscribers by the end of the eleventh five-year plan (2007-12).

Considering the pace at which new connections are being added, these targets do not seem out of reach. The government's focus on reaching out to remote and uncovered areas has helped the country increase its teledensity level significantly.

Currently, it stands at about 36 per cent. This is a substantial achievement when compared to the rate of 13 per cent just about three years ago.

Budget Measures

	Allotted Rs 391 bn for the National Rural Employment Guarantee Scheme (NREGS), an increase of 144%.
	Full exemption of the countervailing duty (CVD) of 4% on accessories, parts and components imported for the manufacture of mobile phones has been reintroduced for another year.
	Customs duty of 5% has been imposed on set top boxes.
	Fringe benefit tax (FBT) abolished.
	Rate of minimum alternate tax (MAT) on book profits has been increased from 10% to 15%, but with a provision of carrying forward the tax credit on MAT to ten years from the current seven years.

Budget Impact

	Increase in allocation for the NREGS will help in targeting more customers in the rural areas.
	Lower CVD on accessories, parts and components will help in keeping the cost of handsets low.
	A 5% custom duty imposed on set top boxes will not significantly influence the end users, considering that the target market is a niche segment.

Company Impact

	The increased allocation to the NREGS would help in targeting newer customers and also indirectly help companies increase penetration levels. Companies such as Bharti Airtel and Reliance Communications, which have a strong pan India presence, will be the key beneficiaries.
	Telecom companies will continue to enjoy the benefits of low cost handsets as it would help in keeping the strong pace of subscriber additions buoyant. This would hold strong for rural markets.