Telecom sector in India was hoping for announcement of reduction in license fees and rationalizing of levies on the sector during Union Budget 2007 – 2008. Instead, the Budget has included development and supply of content for use in telecom and advertising, allocation of work contracts and commercial rentals, in the service tax net. This has not only disappointed the Telecom sector but will in, all probability, lead to increase in cost of telecom services to common man. 

Current business model of sharing revenue between telco, content aggregator and content owner/creator is heavily skewed in favour of telcos. With the announcement of Service Tax on development and supply of content for use in telecom, only future will tell how this additional cost will be shared between the players. Considering that it is telcos who are calling the shots at this time, likely fall out of budgetary move will be that content owners/aggregators will see further shrinking of their share of revenue. 

Service Tax on all work contracts and commercial rent will lead to higher costs to telcos.