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Study: Poor nations will lose out with mobile taxes

Slapping taxes on mobile services will hold back economic progress in developing nations, an industry survey finds.
Written by Aaron Tan, Contributor

SINGAPORE--Emerging economies risk holding back economic development if nations impose high taxes on mobile phones and services, a study has found.

Conducted by global trade body GSM Association (GSMA), the study found that 16 out of 50 developing countries surveyed had slapped consumers with taxes making up more than 20 percent of the cost of a cellphone. In some countries, these taxes can amount to more than US$40 per user each year.

"Although communications transforms economies, governments (in emerging markets) tax mobile phones as luxury goods," GSMA's CEO Rob Conway said today, in an address to delegates at the 3GSM World Congress Asia held here.

While he recognized the need for tax revenues, there must be a balance between taxes and economic development, he urged.

Conway noted that in India, 3.6 million jobs have been created by the mobile phone industry, contributing 5.61 billion euros (US$6.74 billion) to the nation's gross domestic product (GDP).

Research from the London Business School also revealed that a 10 percent increase in a country's population with mobile phones, would boost its GDP per capita by 0.6 percent, he said.

Lowering taxes on mobile usage by one percentage point could boost the number of mobile users by more than 2 percent by 2010, Conway said.

In addition, if low-cost handsets were exempted from import duties and sales taxes, up to 930 million new handsets could be sold, and in some cases, might lead to a rise in total tax revenues, according to the GSMA study.

"In the emerging markets, we have an oddity--that is, nearly 80 percent of the world's population is covered by mobile services, but only one-quarter of the population uses those services," Conway said. "We’ve got to fix this and connect the 4 billion people who are unconnected today."

The cost of cell phones is the biggest inhibitor to mobile penetration in emerging markets today, Conway said.

To drive down cost in those markets, GSMA invited cellphone makers to produce a US$40 mobile phone under the Emerging Market Handset (EMH) program in February this year. Motorola won the tender.

In phase two of the program, where a US$30 cellphone would be produced, Motorola had successfully won the tender for the second time with its C113 and C113a handsets. The second EMH program will start in January next year.

To produce cheaper mobile phones, chipmakers such as Texas Instruments, Philips and Infineon, have managed to design a US$5 cellphone chipset for use in low-cost models, he said. Conway added that chipset production makes up 35 percent of the total handset cost. In fact, "we are on our way to a sub-US$15 handset" which he predicted, could be as soon as 2008.

However, more needs to be done by the GSMA to reduce costs for operators and cellphone users in emerging markets, at least according to Lu Xiangdong, vice-president of China Mobile, the world's largest GSM operator.

Lu said: "To China Mobile, the low cost handsets are not enough. The low cost of mobile phone networks is more important. GSMA needs to work with operators and vendors to negotiate for lower network equipment costs."

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