How the industry looks at the customs duty hike on STBs

MUMBAI: With the country moving towards digitisation, the last thing that multi-system operators (MSOs) and direct-to-home (DTH) companies would have wanted is doubling of import duty on foreign manufactured set-top boxes (STB).

However, finance minister Palaniappan Chidambaram did just that when he stood to present the Budget by increasing the customs duty on STBs to 10 per cent from 5 per cent to provide fillip to domestic manufacturers.

The minister’s intention, though novel, will have repercussions for the industry in the short term, reckon industry experts. It will drive up the price of STBs and, with intense competition in the marketplace, it is highly unlikely that the MSOs and DTH service providers would be able to pass it on to the consumers.

An overwhelming majority of the STBs are imported while the indigenous ones are negligible and inadequate to meet the industry’s demand which has only gone up with the roll out of cable television digitisation.

That aside, the decision augurs well for the industry in the long run provided the Indian STB manufacturers rise to the occasion by matching to the growing demand of DTH and MSO companies.

MSOs rue the duty hike

Coinciding with the second phase of digitisation across 38 cities, the MSOs have found the government‘s decision to hike the customs duty on STBs as "utterly nasty". They are already financially stretched in the short term with the need to subsidise the boxes to their cable TV subscribers while content costs have been on the rise and there is a growing demand among their local cable operators (LCOs) to lift their revenue share above the Telecom Regulatory of India‘s (Trai) prescription for DAS (Digital Addressable Systems) markets.

"We are jacked because we need the STBs for Phase II digitisation and can‘t wait for the local manufacturers to gear into action. While there is a mandate for digitisation, there is not a single thing done by the government to incentivise us. We had asked for tax holiday and we are not even given industry status. On the contrary, the customs duty has been hiked," says Digicable managing director and chief executive office Jagjit Kohli.

Tagged along with the countervailing duty, the net impact of the hike in STB prices would be close to six per cent. For Phase II, industry estimates put the STB requirement to be around 15-16 million.

Den Networks CEO SN Sharma feels that the government’s decision is futuristic, although it will have an impact in the short-term on the price of STBs. “In the long run, the move will encourage local manufacturers to scale up their business which would also help us to save on costs like freight, insurance and transportation etc. However, in the short term it will lead to an increase of Rs 50-60 per STB,” he says.

DTH operators also feel the pinch

Bogged down by heavy taxation and high subscriber acquisition costs, the DTH companies wanted relief on the customs duty side.

Tata Sky MD & CEO and DTH Operators Association of India (DOAI) president Harit Nagpal feels that the government’s decision is ill-timed and will rob the DTH operators of $20 million annually that they have to shell out due to rise in customs duty.

“We (DTH operators) hope that the government will roll back the hike in customs duty. The timing of the decision is not right as there is huge demand for STBs and there are no proven manufacturers of quality STB in the country,” says Nagpal.

He also bemoans the fact that DTH operators who are already paying two-three times the normal tax will be further burdened by this hike.

“We would love to buy indigenous STBs as it would save us from foreign exchange fluctuation, transportation, and import duty. However, the STB manufacturing industry is too small at this stage and we import majority of our STBs,” he adds.

The DOAI had through a memorandum requested the Finance Minister for a duty waiver. However, the government granted the wish of local STB manufacturers who had demanded a hike in customs duty to give a fillip to the local industry.

Airtel digital TV CEO Shashi Arora feels that the government’s decision has dampened the spirits of the DTH operators who are already reeling under three layers of taxation.

“I don’t know what the government is thinking, but this is a cost which we could have done away with. The industry imports 95 per cent of STBs as there are hardly any Indian manufacturers. The industry imports one million STBs every month,” Arora states.

Will the price hike be passed on to the consumers? “Too soon to say anything,” says Arora.

However, not everyone is grieving. Videocon d2h, which manufactures its own boxes, is one of them. “We won’t be impacted by the government’s decision as we manufacture STBs locally,” says Videocon d2h CEO Anil Khera.

A media analyst believes that the industry is grieving more than what the grim reality is. "There is a negative impact in the short term but it is not as if it is casting doom on the industry. The financial impact of a 5 per cent rise on STBs won‘t be substantial to deter digitisation," he says.

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