The rising price of bandwidth

15 January 2011 | Alex Hawkes

It has almost become a telecoms mantra that, while demand for capacity is increasing, the price of bandwidth falls.

Telcos have been wrestling with the inherent difficulties in turning a profit for some time, seeking solutions to the situation where they can. Most providers, wherever they are located, are struggling with challenging macroeconomic circumstances, and – like all industries – are facing the need to specialise, to diversify, to consolidate or simply to provide the best possible services to their customers, gaining a competitive edge by doing what they do better than ever before.

This seems like a fair expectation in difficult times. What doesn’t seem fair is the unanticipated level of taxation which some governments have recently been placing upon telecommunications companies. Vodafone in India has just been presented with a $2 billion capital gains tax bill following its purchase of a stake in Hutchison Essar; meanwhile, Hungary has issued an extraordinary tax upon telecoms providers to offset its national budget deficit.

Many providers are making substantial investment into infrastructure and product development, which improve service levels and benefit the economic status of nations. But narrow profit margins lead to uncertainty. If unexpected tax levies can strike firms out of the blue, the results are not difficult to foresee: telcos will be reluctant to make the necessary investments to increase service offerings, and also to invest in countries with developing and underdeveloped infrastructure. End users continue to expect more capacity for less money, but by plundering telcos’ profits, such taxation threatens to diminish the services on offer.

Angela Partington, Editor