Industry Thought Leadership

Achieving Success in Long-term & Affordable Digital Development

March, 2017
Eng. Zyad Al Khwaiter
GM, Regulatory Affairs (Regulatory and Corporate Affairs)

Saudi Telecom Company

Telecom operators are currently operating at a time when a lot of sensitivities exist on multiple fronts, and the act of balancing these issues has become much more pronounced and difficult to manage. This is very much evident in the context of taxation, industry fees, and other associated charges. Operators struggle to maintain the balance between their financial obligations to the governments and the degree to which they can pass these on to the end consumers, who are savvy enough to first compare prices nationally before they commit to purchasing a product or a service.

One of the reasons as to why the balancing act for telecom operators on taxation matters has become a challenge, is due to the arrival of non-traditional competition like OTTs players and what operators feel is a persisting telecoms-only regulatory mindset. This is especially true when seen through the lens of business sustainability.

Around the world, each country has its own priorities and taxation regimes. The mobile industry has been seen as a cash cow and governments are increasing taxes and regulatory fees. Such actions do not only restrict investment flows, which are critically required for ICT development and digital infrastructure, but also overburden the end-consumer. At the same, such approaches pose a threat at the long-term the growth of the industry and delay in general the socio-economic development.

Addressing short-term revenue needs, such as those in relation to the national budget deficit, with sector-specific taxes or increased industry fees, which sometimes get placed on a purely ad-hoc basis, does burden the industry. We see this in some markets of our region. Usually, taxation and other forms of financial commitments imposed on operators affect the pace and maturity of telecoms standards. Also it has an impact on the technology launches and availability, hampering efforts to harmonize spectrum, and slow progress in achieving economies of scale, for example.

With such far-reaching implications inherent to the high taxation and fees of the industry, it is necessary to change perspectives on the micro and the macro-level impacts over-taxation creates.

What we fully realize, is the role of digital economy in elevating the human civilization’s condition. The Internet is a reality on which digital economy is being built. Internet is empowering people in many new ways. In recognition of the important societal and economic benefits that can be derived from the use of the Internet, there is a need to set visions, supported by ICT development action plans, to enable telecom operators to do more for the benefit of the entire ecosystem.

Increased mobility, for instance, with cross-border roaming of data services, aided through cross-market subsidiary network operations, have created challenges for value-added tax (VAT) system. Such system, which, globally, raises a fifth of total tax revenues and is employed by the majority of the UN Member States, needs to be revamped. One of the ways, this could be achieved it, is by expanding the tax net to new market players in a fair and transparent manner, befitting the industry.

Between 2011 and 2015, telecom operators globally, including STC, invested more than US$800 billion, a major share of which went to mobile broadband and LTE expansion. In part due to such high investments, subsequent pressures on cash-flow margins emerged across the world. By some estimates, the mobile ecosystem has been generating close to 4% of global GDP since 2015, and over 30 million people across the globe are directly or indirectly employed by this ecosystem or by industries linked to it. According to GSMA findings, telecom industry also contributed combined US$520 billion in general towards taxation and spectrum auctions during the same period.

So while telecom operators remain as a reliable contributor to the government revenue stream, it would be a much more effective strategy if the Telecom Operators are enabled to enlarge their contributions to the tax base through indirect means instead of direct taxation which can only produce limited revenues.

Telecom operators, governments, regulators, and all-digital ecosystem players have a role and responsibility to play in order to improve the level of affordable connectivity and to join the government’s mission of fighting the high levels of poverty which is a major cause of low internet connectivity despite so much investment by telecom operators. The industry general sentiment is that we can safeguard benefits of digital progress by reducing the cost of service offerings, which can be ensured through a well-designed regulation and reduced taxation system.

In some countries fair tax jurisdictions for non-resident telecom operators will help them to invest more on the age of digital economy and will open new opportunities to develop more innovations services for the benefits of the ecosystem.

As the world is heading towards 60% internet connectivity by 2020, we are reminded of the fact that there will be an exponential rise in new types of digital transactions and the complex, but rewarding, outcomes of digital development. However, the affordability of the services will play a critical role in achieving such positive outcomes.

In Saudi Arabia, fortunately, the Kingdom’s leadership and the ICT leadership are endeavoring to address these challenges and issues much ahead of the time. The Saudi government recognizes the importance of ICT development and has recently indicated its unprecedented commitments on initiatives that will help Saudi Arabia achieve leadership in ICT. In support of the government’s Vision 2030, STC too has now leaped into a new world of ultra-high speed broadband with its STC Leap Froward strategy. This initiative is well-aligned with STC’s belief that the Communications sector will penetrate into every aspect of future society connecting everything with everything. STC believes that its future network will offer seamless connectivity between people and things in Gbps speeds.

As part of its contribution to fostering digital economy in KSA, STC is prepared to extend its full cooperation and looks forward to a very close relationship with both the ICT and regulatory leadership and anticipates to be at the forefront of enabling and fostering affordable digital communications across the Kingdom and across the markets where STC operates.