A hike in the customs duty from 10% to 15% on printed circuit board assembly (PCBA) used in telecom equipment is expected to increase the 4G and 5G network rollout costs of telecom operators, analysts said, adding that the impact may be particularly high for Vodafone Idea.
This is because the telecom operators are currently dependent on network equipment vendors which import PCBs, which are then used in routers, switches, towers, etc, they said.
The same constitutes about 20% of the ‘bill of material’ of network rollout costs. Besides, about `50,000 crore of PCBs are imported in India, according to analyst estimates.
The impact will be high on Vodafone Idea as the telco is yet to roll out its 5G network and expand its 4G coverage to improve the quality of services. On the other hand, Jio and Airtel are not expected to see an impact of the customs duty hike on PCBs, as they have completed the 5G rollout.
“The government has proposed to increase the basic customs duty from 10% to 15% on PCBA of certain specified telecom equipment. This will increase cost of providing services as the telcos are continuously upgrading their networks with the advent of the new technology,” said SP Kochhar, director-general of Cellular Operators Association of India (COAI).
“It is recommended that the customs duty be reduced to zero and then gradually increased depending on the creation of an ecosystem for manufacturing of telecom gear in India,” Kochhar added.
Currently, local operators such as Dixon and Optiemus manufacture PCBs in the country. Besides, there are many smaller players which are into PCB manufacturing.
One of the concerns of COAI on telcos not shifting to local players is the quality issues. “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,” Kochhar said.
Vodafone Idea is planning to incur a capital expenditure of `50,000-55,000 crore over the next three years on the back of recent equity fundraise and proposed bank funding.
Local gear makers lauded the government’s move to increase the custom duty as the same will be beneficial in increasing domestic manufacturing and discourage imports.
“Quality has never been the challenge for domestic gear manufacturers. We are seeing many companies exporting to different countries. It’s all about scale and by placing orders to local manufacturers telecom operators will get a cost advantage,” said Rakesh Bhatnagar, director-general of VoICE, which represents companies like Tejas, STL and HFCL, among others.
