What measures may be taken to support the telecommunications industry. Among them is relaxation of requirements under the “Yarovaya law”, subsidies on loans to purchase equipment, and investment tax incentives.
The Russian Union of Industrialists and Entrepreneurs (RSPP) and the Ministry of Digital Industry discuss 13 support measures for the telecommunications business. This is stated in a presentation prepared at the end of August by the McKinsey consulting company, the Ministry of Digital Industry, and the Russian Union of Industrialists and Entrepreneurs (RSPP).Its authenticity was confirmed by two sources close to telecom operators.
According to one of the interlocutors close to the operator, the measures indicated in the presentation coincide with those discussed at the Ministry of Digital Science. Nevertheless, this document is “one of many versions”, and the final list of measures will be approved at a meeting with the minister, said another interlocutor in the telecommunications market.
Earlier, the head of the ministry Maksut Shadayev said that the church was preparing the first package of measures to support the telecommunications industry and would offer a list of specific initiatives by the end of October. At the end of October, will present the final list of proposals for support measures to Minister Maksut Shadayev, said an interlocutor in one of the operators.
The Ministry of Digital Industry reported that they are working on a package of measures to support the telecom industry, but they declined to comment further.
What Does The Ministry Offer?
As additional measures of support, the Ministry of Finance proposes five initiatives:
- give operators a target range of 3.4 – 3.8 GHz
- direct payments to operators for the use of radio frequencies to create infrastructure.
- create concessional loans for capital investments in infrastructure
- allow operators to use public infrastructure in the construction of communication networks/facilities
- to compensate for the shortfall in income due to the implementation of the “Accessible Internet” project.
The document states that an assessment of the potential impact of these measures is “under development”. Some of these measures have been discussed earlier. So in March of this year, the Ministry of Digital Industry already supported the proposal of the Russian Union of Industrialists and Entrepreneurs to compensate operators for “Accessible Internet”, but since then, no measures have been taken.
In addition, operators have repeatedly stated that for the development of 5G, they need frequencies from the 3.4 – 3.8 GHz range. Still, the Russian Security Council opposes the transfer of these frequencies since special services use them.
Konstantin Ankilov, an analyst at TMT Consulting, notes that the ministry’s proposals are meaningful and correct, and there has already been a successful experience in implementing some of them. In his opinion, it is necessary to direct payments to operators for the use of frequencies to develop infrastructure where it is economically unprofitable to do so or for the development of highways.
He believes that these measures will help operators: “In an environment where revenues from traditional services are not growing, operators must invest a lot of money in new digital means, and with the development of 5G, a lot of additional investments will be needed.”
What Does The Business Offer?
The Russian Union of Industrialists and Entrepreneurs also proposed their support measures for the telecom industry, which includes representatives of the leading telecom operators:
- By January 2022, soften the requirements for storing traffic according to the “Yarovaya law” – reduce the storage time of information from 30 days to 15-20 days and exclude “trusted traffic” from the calculation of equipment capacity – for example, from audiovisual services, including online cinemas … Subsidize part of the operators’ expenses for picking up and delivering traffic to special equipment for the accumulation of information, which will enable operators to use 8-10 billion rubles of investments.
- Provide operators with subsidies on loans to purchase radio-electronic and telecommunications equipment at a rate below the critical speed (below 6.5%). According to the Union, this will allow increased purchases of Russian equipment by 40-50 billion rubles, while the budget expenditures for compensation of the rate will amount to 1.7-2.2 billion rubles. Apply preferential lending to purchases for equipment included in the Unified Register of Russian Radio-Electronic Products. If the necessary equipment is not in the register, the privilege can be obtained by a particular decision of the Ministry of Finance and the Ministry of Industry and Trade.
- by December 2023, create a special trust fund to which foreign Internet companies operating in Russia will be required to make payments of 2% “for the development of digital infrastructure.” The authors of the presentation did not indicate precisely how would count this 2%. Still, they noted that the total payment could amount to 36 billion rubles, and these funds will be distributed on a competitive basis.
Earlier, Rostelecom has already proposed to oblige foreign IT giants to pay 1.2% of their annual turnover to the universal service fund. Now similar contributions are made by all telecom operators; with this money, Rostelecom conducts the Internet to small settlements. According to Mikhail Oseevsky, President of Rostelecom, the participation of foreign companies in these contributions “would be fair given the fact that their business cannot exist without the Internet.”
In addition, the members of the RUIE proposed to stimulate the creation of basic communication infrastructure (for example, to supply electricity to base stations) during the construction of highways. The Russian Union of Industrialists and Entrepreneurs pointed out that now the cost of covering federal and regional routes by communication is more than 600 billion rubles. In contrast, 75% of the cost of building communication networks along them is “non-core costs for providing energy supply and building technological roads.”
Other initiatives of the RUIE:
- Create a tax deduction for those operators who build communication networks in small places and along highways. In this way, operators will be able to reduce income tax at the expense of capital expenditures. So, over the past three years, MTS has paid almost 35 billion rubles in income taxes, but by introducing such a benefit, it will save about 12 billion rubles from paid taxes, the presentation says.
The idea of using tax incentives to stimulate companies to invest more in real estate and equipment used in a business is not new, says Gennady Timonichev, head of tax planning practice at the MEF PKF. “At first glance, the proposed initiative is notable for its focus on co-financing social rather than commercially attractive projects, that is, it compensates for the construction of communication networks in sparsely populated areas at the expense of the budget. However, it is possible that the real effect of the benefit may be lower than expected for companies, for example, if the justification of part of the costs is challenged and, accordingly, the application of the benefit to them is denied,” Timonchev says.
- Introduce subsidy programs for connecting villages to the Internet. The presentation states that with an increase in local demand for services, it is possible to reduce the connection costs to 6,000-7,000 rubles per household (now, according to the Russian Union of Industrialists and Entrepreneurs, this costs 10,000 to 80,000 rubles);
- to reduce the threshold for telecom operators on applying the law on the protection and encouragement of capital investments from 5 billion rubles to 500 million rubles (as in IT companies). The law was adopted in 2020; it allows companies to agree according to which, when implementing investment projects, the authorities guarantee not to apply to the new regulations that could worsen their situation;
- reduce spectrum fees when building infrastructure for government purposes.
Why Support A Telecom
Support measures for the telecom industry are necessary, as operators’ profitability is falling, which does not allow them to meet the growing need for investments in new projects, as follows from the explanatory part of the presentation. Over the past three years, additional investments of operators have exceeded 300 billion rubles; they go to the implementation of the Yarovaya Law and the installation of SORM and cover remote settlements, covering roads, and build 5G networks.
At the same time, the number of subscribers, revenue and average income per subscriber is stagnating, and currency risks, inflation and shortfalls in income from providing free access to socially significant resources can also reduce the investment opportunities of operators the presentation says.
Telecommunications is a critical element of economic growth. Still, Russia is losing its position in terms of quality of services: in five years, the country has lost its place in terms of Internet speed growth and dropped from 40th to 51st in the world Speedtest rating. In the next 3-5 years, the industry needs to accelerate investment in infrastructure. According to the calculations of the authors of the presentation, by 2024, it is necessary to invest about 1.6 trillion rubles in capital investments and an additional 300 billion rubles.
These are not the only support measures for the information and technology industries. In mid-September, the government approved the so-called second package of measures to support the IT industry, which included 62 proposals to create additional conditions for the development of the IT industry.
Most of them aim to stimulate the growth of domestic products and level the market opportunities of Russian and foreign IT companies. In particular, we are talking about introducing a digital tax for foreign Internet companies, the mandatory use of domestic messengers in schools, and the authorization to write electronic prescriptions and sell prescription drugs over the Internet.
In June 2020, President Vladimir Putin announced a tax maneuver in the IT industry – decided to reduce companies’ insurance premiums from 14% to 7.6%, and the profit tax from 20 to 3%. At the same time, it cancelled zero VAT for software not included in the register of Russian software.