Pricey connectivity

After the failed auction of the cancelled 2G licences, which earned the government less than a fourth of what it had estimated (Rs 40,000 crore), Budget 2013/14's expectation that the new auctions will fetch Rs 40,847 crore looks ambitious. A deferred payment option allows operators to pay the amount in the next ten years. However, operators have not been participating in the auctions. In fact, Mumbai has still not been bid for after the circle's 2008 licences got cancelled.

The telecom industry, which is already cash strapped and facing profitability issues, will see another roadblock with the spectrum price hike. The debt burden for companies in the industry is likely to rise. Currently, the industry's burden (all operators) is pegged at Rs 1.85 trillion crore.

Spectrum is not the only part where the telecom industry has been hit. There is an impact on mobile handset makers as well, albeit to a lesser extent. Phones priced more than Rs 2,000 will get dearer as an additional duty will be levied. These handsets account for almost 60 to 70 per cent of the market in volumes.

The indirect tax proposal will see prices of smartphones going up by four per cent due to the change in the tax structure. Smartphones, which accounted for 12 per cent of the market in 2012, are expected to comprise more than 20 per cent of the handset market in volume terms, and close to 30 to 35 per cent in revenue terms, by the end of 2013.

There was some good news as well. The finance minister spoke of supporting semiconductor or wafer plants. Semiconductors and wafers are important components of electronic devices, including mobile phones. And any incentives for semiconductor plants will boost the electronic component manufacturing eco-system.

As for as the costs are concerned, it will be interesting to see how companies - both telecom operators and device makers - manage them.

Of course, they could simply choose to pass them on to buyers.