Convergence Plus
Policy & Regulation
Monday, July 22, 2019
Northeast telecom delay concerns PMO

The Prime Minister’s Office (PMO) has expressed concern over delay in implementation of critical telecom infrastructure work in the northeast, and has given instructions to hasten projects that are estimated to cost upwards of Rs 5,300 crore.

According to sources in the telecom ministry, the projects in northeast — one tendered through state-owned BSNL and the other by a government agency (further given to the Bharti Group) — envisage provision of mobile coverage to 8,621 villages, installation of 321 mobile tower sites, and strengthening of transmission network in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura.

However, while the project being undertaken by the Bharti Group has seen some progress, the one allotted to BSNL — covering Arunachal Pradesh and two districts of Assam, and worth Rs 2,250 crore — is still languishing with years of delay, prompting the nudge from the PMO. The principal secretary in the PMO had recently chaired a meeting where the review of the project was undertaken.

“The slow progress in Comprehensive Telecom Development Plan (CTDP), specially for Meghalaya, Arunachal and two districts of Assam was noted with concern,” a source said, while briefing about the PMO’s views.

The PMO also said since no stay has been granted by the Supreme Court on a special leave petition regarding the NE work, “delay in implementation of the project was avoidable”. The matter will now be decided by the Digital Communications Commission (DCC), the highest decision-making body on telecom matters, at its meeting on Tuesday. The plan had originally been approved by the Cabinet in September 2014, but has been going slow due to bureaucratic delays, lengthy tendering processes and even legal challenges. (Source: ETTelecom)

Buyback Tax Infosys, Others may Have to Pay 20% Levy Themselves

Repurchases worth ₹10,000 crore under progress; cos will not be able to make revisions to factor in the new tax. The government’s budget proposal to tax buybacks by listed companies could affect at least half a dozen share repurchases worth ₹10,000 crore that are already in progress. The list includes the ₹8,600 crore share buyback by Infosys, which has already begun. Since these companies have fixed their offer prices already, they will not be able to make revisions to factor in the new tax. Experts said such companies will have to pay the 20% tax themselves.

Previously, only share repurchases by unlisted companies were subject to such a tax. The measure is a part of anti-abuse provisions and aimed at curbing wrongful exploitation of the buyback route.

“The law does not provide any exemption for companies which have filed their prospectus with Sebi,” said Lokesh Shah, partner at law firm Luthra & Luthra. “Any buyback implemented on or after July 5, 2019, by listed companies is subject to the additional income tax, payable by the company, at an effective tax rate of 23.29% consequent to the buyback.”

Although the Infosys buyback opened for public subscription on March 19, the new tax will still be applicable since the rules apply to any payment a company makes for buybacks after July 5. The Infosys buyback will close on September 20 after which the company will make the payout to shareholders.

Share buybacks of Welspun, SKP Securities and Star Cements among others are in the offing.

Tax experts are awaiting clarity on how the buyback tax will be calculated. Currently, the tax on unlisted companies is calculated on the basis of the difference between buyback and issue prices. The government has extended the same formula for listed companies but that doesn’t take into consideration the fact that listed shares are frequently traded. Experts said tax should be calculated on the cost at which investors bought the shares and not the original issue price.

“Buyback tax is payable on the difference between buyback price and the price at which shares are issued by the company,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates. “As of now, the way the section is worded, for calculating the amount on which the tax is applicable, the purchase price of investor would not be taken into account and hence could lead to potential double taxation to that extent.”

For investors, buybacks will be beneficial as they will not have to pay capital gains tax on these shares. Until now, gains made from buybacks were subject to capital gains tax in the investor’s hand. Now, companies will have to deduct the tax based on the amount payable on account of share repurchases.

The government extended applicability of the new tax to listed entities since several companies were using buybacks instead of high dividends to return money to shareholders. In 2007, the government had introduced 15% tax on dividend distributed by listed companies. This tax is deducted by the companies based on their total dividend payout. The FY16 budget saw the introduction of additional dividend tax (ADT), which applies to any individual getting dividends worth more than ₹10 lakh in a financial year. ADT, unlike dividend distribution tax, is charged in the hands of investors.

“Buybacks were also being used by promoters to shore up their shareholding and acted as a method used for stalling the fall in prices,” said Tomu Francis, partner, Khaitan & Co. “The route will now become relatively expensive.” (Source: Economic Times)

‘AP to unveil new IT policy in 100 days’

The Andhra Pradesh government will unveil a new IT policy within 100 days or so, and the State government will focus on developing Visakhapatnam as the IT destination, M Goutham Reddy, the State IT and Industries Minister, told the media here on Saturday.

He said the government would review most of the agreements signed by the previous Telugu Desam Party (TDP) regime and review the policies relating to IT and industry development. “If there are any good features and policies, we will persist with them. It is not our policy to undo whatever the previous government had did,” he said in response to a question.

After a review meeting with the representatives of IT Association of Andhra Pradesh (ITAAP) and IT companies at Tech Hub along with Tourism Minister Muttamsetti Srinivasa Rao, he said that the government would ensure balanced development in both urban and semi-urban areas by promoting BPOs and MSMEs to generate jobs for the locals. (Source: The Hindu BusinessLine)

Communications minister Ravi Shankar Prasad seeks relief package for telecom sector

He has also sought a cut in GST rate from 18% to 12%, which can help lower the monthly mobile bill of consumers. Communications minister Ravi Shankar Prasad has pitched for a series of relief measures, including lower licence fee, in the budget for the beleaguered telecom sector.

He has also sought a cut in GST rate from 18% to 12%, which can help lower the monthly mobile bill of consumers, but it’s a decision which is outside the budget and a call has to be taken in the GST Council, comprising state and Union finance ministers.

The recommendations are being portrayed as the government’s thrust on expanding Digital India through cheaper tariffs, while also paving the way for “affordable” mobile services, including upcoming 5G technology.

Prasad has proposed a 25% cut in the licence fee that companies pay to the government, sources told TOI. This can be done through a 2% reduction in the Universal Services Obligation Fund (USOF) levy, which could bring down the effective licence fee rate from the existing 8% (5% USOF and 3% administrative charges) to 6%.

The telecom department is also seeking an immediate refund of Rs 30,000 crore blocked and delayed GST input credits owed to the mobile operators by the government. The move to reduce licence fee will benefit all operators such as Bharti Airtel and Vodafone-Idea, and could help them free up cash as they battle heavy debt and mounting losses.

“Mobile handsets, which are now a basic necessity, are charged 12% GST, while mobile services are charged at 18%. Mobile has become a necessity and utility for digital delivery of services to 1.2 billion subscribers, including the poorest sections of society. Thus, there is a need to bring down the high incidence of GST on telecom services… The reduction of GST rate would benefit a very large number of telecom subscribers.”

On the issue of license fee levy, Prasad said that a cut in USOF levy (charged for taking telecom services in uncovered and rural areas) can be done as mobile services have already grown by leaps and bounds over the past few years.
(Source: Economic Times)

White House seeks delay on Huawei ban for contractors

White House seeks delay on Huawei ban for contractors. The White House Office of Management and Budget has asked the U.S. Congress for more time to phase in a ban on federal contracts with companies that do business with Chinese telecom giant Huawei, part of a defense law passed last year.

The ban is one part of a multifaceted U.S. push against Huawei Technologies Co Ltd, the world's largest telecoms network gear maker, which Washington has accused of espionage and stealing intellectual property.

Huawei has repeatedly denied it is controlled by the Chinese government, military or intelligence services. It has filed a lawsuit against the U.S. government over the restrictions in the defense policy bill.

The defense law, called the National Defense Authorization Act (NDAA), placed a broad ban on the use of federal money to purchase products from Huawei, citing national security concerns.

It included a ban on direct federal purchases of Huawei equipment, which will take effect this year.

But the White House said the government needed two additional years to work out rules for another part of the law, which requires third-party suppliers and contractors to restrict their purchases and use of Huawei equipment.

"This is about ensuring that companies who do business with the U.S. government or receive federal grants and loans have time to extricate themselves from doing business with Huawei and other Chinese tech companies listed in the NDAA," Jacob Wood, a spokesman for the White House OMB, said in a statement.

Acting OMB Director Russ Vought asked congressional leaders and Vice President Mike Pence for the delay in a letter earlier this week. The letter was first reported by the Wall Street Journal.

Vought said the delay would "ensure the effective implementation of the prohibition without compromising desired security objectives," and said there would be a "dramatic reduction" in the number of contractors able to sell to the U.S. government without a delay.

Vought asked that restrictions against purchasing Huawei equipment imposed on government contractors begin in four years, rather than two years. The delay would allow "additional time to think through the associated potential impacts and possible solutions," he said.

The requested delay would not stop or affect the timing of a separate Commerce Department rule that added Huawei to its "Entity List," a blacklist that bans the company from buying parts and equipment from American firms without U.S. government approval.

President Donald Trump also signed an executive order last month that bars U.S. companies from using telecommunications equipment made by firms deemed to post a national security risk. (Source: ETTelecom)

US companies want India to change its policy on e-commerce, IPRs

Advocacy group to present new govt with suggestions on reforms. American businesses want the new Bharatiya Janata Party (BJP) government to usher in “bold reforms’’ across a spectrum of areas including e-commerce, data localisation, intellectual property rights, land and labour laws and policy formulation, according to a Washington-based advocacy group US-India Strategic Partnership Forum (USISPF).

“We are working on a document highlighting the reforms and changes US businesses would want to see in India and will hand it over to the Indian government next week,” said Mukesh Aghi, President, USISPF, who is in New Delhi interacting with officials from various Ministries and Departments including Commerce & Industry.

Policy change
Aghi said that the change in e-commerce rules earlier this year, that stopped companies with foreign investments to sell products of companies in which they held equity, had come as a jolt to foreign investors such as US-based Walmart, which had invested $26 billion in acquiring Indian e-commerce company Flipkart.

“The abrupt change in policy impacted investments. A government has to maintain the trust of investors,” he said. He added that US companies also wanted India to change its rules on data localisation that disallowed data of customers collected by businesses to be transferred and stored out of the country. Aghi said that American businesses were keen to invest in India and bring in technology but they would want reforms in the inflexible land and labour laws that hinder operations.

IPR laws
Changes in IPR laws granting more protection to patent holders and relaxation in price caps for medical equipment and medicines were some of the demands being made by US companies, Aghi added.

On the proposed withdrawal of Generalised System of Preferences (GSP) benefits that allow duty free imports of over 3,000 products from India into the US, the USISPF suggested to the US government that it should be continued as it was a gesture of goodwill and also helped create jobs in India. (Source:The Hindu Businessline)

NCLT nod for Indus Towers-Bharti Infratel merger

Bharti Airtel and the UK’s Vodafone will jointly control the pan-India company, which will operate over 163,000 telecom towers across 22 service areas with an estimated valuation of $12-13 billion.

The Chandigarh bench of the National Company Law Tribunal has approved the merger of Indus Towers with Bharti Infratel, which will create one of the largest telecom tower companies globally.

Bharti Airtel and the UK’s Vodafone will jointly control the pan-India company, which will operate over 163,000 telecom towers across 22 service areas with an estimated valuation of $12-13 billion.

“The NCLT, Chandigarh Bench, vide its order dated May 31, 2019, has sanctioned the scheme of amalgamation and arrangement between Indus Towers (transferor company) and Bharti Infratel (transferee company) and their respective shareholders and creditors under Sections 230 to 232 of the Companies Act, 2013,” Bharti Infratel said in regulatory filings on Sunday.

The tower arm of Bharti Airtel said the Indus-Infratel amalgamation would “become effective” when a certified copy of the NCLT order is filed with the Registrar of Companies “upon fulfilment/waiver of other conditions prescribed in the scheme. The effective date, it said, would be communicated to the exchanges when the scheme takes effect.

Bharti Infratel shares had fallen 0.4% to Rs 271.20 on the BSE on Friday.

Just over a week ago, Bharti Airtel and Vodafone Plc had said Indus Towers CEO Bimal Dayal would head the merged entity, while Hemant Ruia would be its chief financial officer.

The merger, proposed almost a year ago, is expected to conclude by the end of June after obtaining regulatory approvals. In the interim, the existing leadership teams of Indus and Bharti Infratel will manage their respective businesses.

Bharti Airtel and Vodafone Plc currently own 42% each in Indus Towers and are expected to hold 37.2% and 29.4%, respectively, in the merged entity.

KKR and Canada Pension Plan Investment Board will own a combined 6%, stemming from their stake of over 10% in Bharti Infratel. Vodafone Idea, currently holding 11.15% in Indus, is slated to exit at the time of merger.

ET reported earlier that Bharti Airtel and Vodafone Group are in talks with a consortium led by private equity firm KKR to slash their stakes by over half to 13% or less each in the new company. While Airtel is expected to use the funds to pare debt and free up cash to fight Reliance Jio Infocomm, Vodafone may infuse the funds into Vodafone Idea, its Indian mobility joint venture. (Source: ETTelecom)

COAI urges new govt to ease telecom sector's financial woes, review spectrum prices

The industry hopes that the current level of 30 per cent levy would be reduced to provide a breather to the stressed sector. The new government should take urgent steps to ease the financial burden on the stressed telecom sector, slash overall levies to an ideal 4-5 per cent and review spectrum prices to make it affordable ahead of the crucial 5G rollout, industry body COAI said.

Prime Minister Narendra Modi has led Bharatiya Janata Party (BJP) to a landslide victory for a second term in office, while the Congress suffered a serious setback in the Lok Sabha polls.

The new government, which is set to be formed in the next few days, will present the full Budget for 2019-20, and the mobile operators' association is hoping that some of its long-pending demands will be taken up in the coming months.

Topping its wishlist is cut in levies, as the industry hopes that the current level of 30 per cent levy would be reduced to provide a breather to the stressed sector.

"Charges like Licence Fee, Spectrum Usage Charges and redefinition of Adjusted Gross Revenue (AGR) needs to be looked at," Cellular Operators' Association of India (COAI) Director General Rajan Mathews told PTI.

Asked what the association considers to be an ideal level, Mathews said globally levies do not exceed 5 per cent and hence 4-5 per cent would be "ideal".

On the issue of debt restructuring, Mathews said telecom operators should be given more time for repayment of spectrum bought in auctions. This, he said, can be done by increasing the moratorium period to four years and payment period to 18 years keeping the 'Net Present Value' unchanged. The industry also wants the government to look at making spectrum prices "more affordable".

"If we want 5G to take off, the present pricing will not get you there," Mathews added.

He noted that at the present prices proposed, operators will not be able to afford the radiowaves which, in turn, will pose a challenge in rollout of 5G services.

A section of the industry has questioned regulator TRAI's methodology of computing the reserve price, claiming it has resulted in spectrum prices being unreasonably higher than global benchmarks.

Earlier this year, Bharti Airtel NSE 4.25 % Chairman Sunil Mittal too had flagged high reserve prices of 5G spectrum. He had said the government must price spectrum reasonably and lower various levies to encourage rollout of 5G services in the country at the earliest.

The telecom czar had also warned that the spectrum auction may fail and Airtel might not bid for airwaves if the auctions are held at prices recommended by TRAI.

The Telecom Regulatory Authority of India (TRAI) has recommended auction of about 8,644 MHz of telecom frequencies, including those for 5G services, at an estimated total base price of Rs 4.9 lakh crore.

The telecom sector is burdened with staggering debt levels and cut throat competition.

Competition has only intensified since 2016, when Reliance Jio, owned by richest Indian Mukesh Ambani, stormed into the market and offered lifetime free calls and dirt cheap data. Jio's disruptive offerings forced rivals to slash rates, affecting profit margins. Since Jio's launch, rivals have either merged, resorted to acquisitions or folded up. (Source: Economic Times)

DoT asks Karnataka to align infra roll out policy with RoW policy

The DoT in a letter dated May 1 to the state government said that the proposed regulation in Karnataka for telecom infrastructure roll out is not aligned with the Right of Way policy notification of November 2016.

The Karnataka government has been asked by the telecom department to align its infrastructure roll out policy with the Centre's following incidents of cable cutting by the local municipal body in Bengaluru. The DoT in a letter dated May 1 to the state government said that the proposed regulation in Karnataka for telecom infrastructure roll out is not aligned with the Right of Way policy notification of November 2016.

Referring to a communication last month, the DoT Advisor for Karnataka telecom circle said, "it has been requested to pursue with state government for implementing the state RoW policy aligned with the central (Indian Telegraph) Right of Way policy."

Recently, the Bruhat Bengaluru Mahanagara Palike (BBMP) had ordered to cut down telecom cables laid over the ground, citing them to be non-compliant with existing norms, and has demanded fees from companies to lay them underground.

However, telecom service providers said the cables were laid overhead temporarily due to road construction work and they had already paid the fees for laying them under the ground.

Telecom cables connect mobile towers with each other and also provide bandwidth for broadband connections.

Industry group Tower and Infrastructure Providers Association (TAIPA) had alleged that cable were cut in areas like Sarjapur Road, Whitefield, Marathahalli, Bellandur and Sarjapur without any prior intimation to the telecom industry.

The letter from advisor said that the action from the BBMP had adversely impacted the network connectivity and also seriously affected digital transactions and other emergency services.

The DoT has requested the state government to conduct workshop to create awareness about radiation, finalise the state RoW policy aligned with central (Indian Telegraph) Right of Way policy.

According to a DoT letter issued to telecom circle head in states , only 13 states have aligned their RoW policy with that of the central government including Haryana, Odisha, Jharkhand, Rajasthan, Assam, Tamil Nadu Uttar Pradesh. (Source:ETTelecom)

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