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Excessive
taxing inhibits Telecom growth
US$
6 bn held by govts without investing in Mobile sector
By
Santhush Fernando
Punitive taxing posed a huge dilemma for the growth
of Telecommunication and hampered Economic growth in the long
term.
Programme Director, Public Policy, GSMA, Adam Denton, made
these observations at the recently concluded 29th GSMA Conference.
“Taxing is a huge problem for the Telecommunications
Industry. Punitive taxes have a very negative impact on the
Industry. Governments feel that Telecoms are easier to tax,
like taxing cigarette companies.” Denton said.
“We don’t say that corporate or value added taxes
should not be paid, but excessive irrational taxing inhibit
Economic growth not only in the Telecommunication Industry,
but also in the GDP,” he said.
“In half of the countries in the world, 25% of the cost
of handset is punitive taxes. We see this across many markets.
But when excessive taxes are removed, it fuels long-term growth.”
“Like cigarettes, we’re a very easy target. The
impact is that, it takes money and redistributes it into other
areas. The difference is that, it doesn’t go back into
Telecom. We believe that, we are tax neutral, if you remove
punitive taxation. By punitive, we mean, above and beyond
Value Added Tax.”
Telecom industry propels GDP growth
“The contribution that Mobile makes to markets is absolutely
astronomical. Our call to government is don’t tax Mobile,
let us do our job and we’ll provide the services and
the value to your society that you’re looking for.”
Ten per cent growth in Telecommunications would translate
into 1.2% growth in the economy of a country. Telecom sector
contributed 3.7% to GDP growth of Malaysia, while the same
was 6.2% for Bangladesh. The contribution of the Industry
to Economic growth in Pakistan and Thailand was 5.1 and 4.9%
respectively.
Sri Lanka’s cash-strapped government tripled from 2.5%
to 7.5% of the “Cellular Mobile Telephone Subscriber
Levy” on the phone charges paid on every one of 5.9 million
plus mobile phones in operation, while the imposition of a
regressive, usage-insensitive Rs 50 tax on the above Mobiles
subscriptions, was withdrawn after strong opposition.
Universal Service Funds- success or failure?
Denton said that Universal Service Funds were set up with
the objective of reaching the unconnected, but governments
worldwide held onto over US$ 6 bn, which weren’t being
accessed or weren’t being allowed to access by Telecom
companies.
“My perspectives will be broad. I’ll cover the broad
issues here. Primarily, on connecting the unconnected for
the first two issues and Roaming, applies to all of us. Today,
80% of the world has Mobile coverage. One could question whether
Universal Service has already been reached.”
“Interestingly, when we look at developing countries,
about 1/3 have a Universal Service Fund (USF). The trend is
for governments to introduce more USFs and to stretch the
definition. The people that contribute to this fund are you,
the Mobile Operators and it is, in effect, taxation. It becomes
a taxation to subsidise monopoly Fixed Line Operators something
that they had hundreds of years to do.”
Ironically, by taking money away, USFs can inhibit Mobile
Service Providers ability to reach unconnected. Our question
has always been, “Is it appropriate to have a USF and,
if it is necessary, can we ensure that the distribution of
those funds is fair and equitable?”
There’s an estimated US$ 6 billion tied up in USFs that
can’t be accessed. What we’ve realised is that,
they’re not giving away, so we’ve focused on good
governance of those funds.
“Time has come yet again, to think twice of channelling
money into these funds.”
Regressive regulations can kill thriving Telecom industry
Citing an example of regressive regulating, Denton said that
the European Union, which was very unpopular back home, recently
introduced new Telecommunication Regulations and Tariff cuts,
to appease its populations.
“As an Industry, we managed it badly. Being responsible,
being transparent and being clear remained a priority for
Mobile Operators.”
“You must make sure you communicate to your politicians
what you’re doing. It cost the Operators 150 million
euros merely to implement the Regulations.”
However, Europe’s Mobile Industry is cutting back spending
drastically on new networks and services, as a growing Regulatory
burden from the EU puts profitability under pressure. To justify
the imposition of retail price caps, the European Commission
has claimed that Mobile Operators are making excessive profits,
but the European Mobile Industry’s return on capital
employed (ROCE) was just 9% in 2006, compared with more than
20% in software, pharmaceuticals and several other sectors.
In its response to the European Commission’s public consultation
on the voice roaming regulation, the GSMA, the global trade
body for the Mobile Industry, warned that European Mobile
Operators, on average, were only just covering their weighted
cost of capital and some of them are making an economic loss.
“Telecom Industry in Europe was considered a soft target
for taxing, as in most countries. However, these moves wiped
off 30% of the revenue of operators.” Denton said.
“It’s now very active on the political agenda. Everyone
knows about European Roaming Regulation. Within your region,
in Asia, we’ve seen the Australian Parliament and Indian
Parliament are quite active.”
The genesis started in 2004, with the EU complaining about
Roaming prices in the UK. The result was a Wholesale Cap of
30 Euro cents and a Retail Cap of 49 cents for Outgoing and
42 cents for Incoming. And this Retail Cap was unheard of.
The question really is, is it a Regulatory question in Europe
or, is it something else? My answer is that, it has nothing
to do with Regulation.
Prices were falling at about 20% a year, with no sign of competitive
failure, and surveys in Europe showed that users were happy
with their Mobile services, including Roaming.
The EU is now surprised that innovation has stopped in Roaming.
It doesn’t make sense to do anything different. The reason
the European Commission wanted to implement Caps was that,
you would see an explosion in Roaming traffic. The Mobile
Operators have seen 30% of Revenue wiped out and nothing near
the promised elasticity.
The European Commission is unpopular in member States and
they needed a win. They picked a pan-European service and
they’ve been very successful, politically.
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