Indian telcos want vendors to absorb customs duty hike – reports

Telcos are urging vendors to absorb the recent hike in basic customs duty (BCD) on printed circuit board assembly (PCBA), according to media reports.

In the recent union budget, the Indian government has increased the customs duty on PCBA, which is used in telecom network gear, from 10% to 15%. Around 80% of the PCBAs used in network equipment are imported.

"The government has also proposed to increase Basic Customs Duty from 10% to 15% on PCBA of certain specified telecom equipment. This will increase the cost of providing services as the telcos are continuously upgrading their networks with the advent of new technologies," said Lt. Gen. Dr. SP Kochhar, director general of Cellular Operators Association of India (COAI), in a press note.

"Until high-quality equipment is available domestically at competitive prices, COAI urges the Government to reduce customs duties for 4G and 5G network products, as well as other related items, to NIL," Lt. Gen. Dr. SP Kochhar added.

The top three Indian telcos, Bharti Airtel, Reliance Jio and Vodafone Idea, have recently increased their rates. However, the impact of this tariff hike will be reduced if vendors don't absorb the rise in BCD. In addition, operators have only recently started monetizing 5G services, which were previously available at 4G rates. Further, the recent changes in the Quality of Services norms also put the telcos on the back foot as they are likely to increase their expenses and compliance burden. 

Vodafone Idea is in a worse position since it is yet to name vendors for its 5G network deployment. It announced recently that it is engaged with Samsung and has conducted trials with it. The recent hike in customs duty could potentially increase the cost of deploying a 5G network for Vodafone Idea. The service provider is likely to launch 5G services later this year. 

On the other hand, the two prominent vendors, Nokia and Ericsson, have seen their revenues in India drop. Bharti Airtel and Reliance Jio have also spoken about subdued capital expenditure in the current financial year as the initial phase of the 5G rollout finishes and 5G monetization is some time away. In this regard, the vendors and telcos are likely to explore a win-win solution to the issue of hike in BCD on PCBAs.

In these circumstances, the absence of Chinese vendors in the Indian market would be particularly problematic for the telcos, since they are known to provide better costs and payment terms.