Private telecom operators have reason to breathe easy. The long-awaited policy announcement has arrived. They are off the hook over dues valued at about Rs 1,433 crore. And the prospects for business have improved.
The policy marks a major shift -- allowing both basic and cellular service providers to move from the existing licence fee-based system to a revenue-sharing system. The government has also met one of their main demands -- waiver of the licence fee. It has done this by extending the effective date of the licences of all the basic and non-metro cellular operators by six months. (for list of basic and cellular operators, )
The new system will be effective 1 August 1999.
The main features of the new policy are:
- existing operators will migrate to the new policy regime of revenue sharing from 1 August 1999
- 15 per cent revenue will be shared as interim arrangement if the Telecom Regulatory Authority of India is not able to make its final recommendations before 31 July 1999
- all operators are to pay 15 per cent of licence fee as arrears before 15 August 1999
- the balance arrears, including interest, will be securitised through bank guarantees
- a five-year lock-in period for present shareholders from the date of licence agreement. No transfer of shares will be allowed
- fresh investors can come into a company, but existing shareholders cannot get out
- both the operators in a cellular circle will have to agree to migrate; or else both will remain in the present regime
- It is estimated that the licence fee waiver will cost the government Rs 1,433 crore.
India's telecom sector has been in a mess. Bidders for licences quoted ridiculously high figures in order to grab the licences, and then regretted it. The government kept mixing up things, and delaying decisions on crucial issues such as badnwidth and roaming facilities for cellular services, and made life difficult for the operators. Matters were exacerbated when former telecom minister Jagmohan took a tough stand on defaulting operators. He coerced them to pay up or quit.
At least in one case, Koshika, the licence was withdrawn by an over-enthusiastic DoT. The prime minister had to finally intervene and move Jagmohan to another department.
Some operators went to court. They claimed their services had been held up because of delays in government clearances and inadequate allocation of frequency spectrum. They said their business plans had gone haywire. And so on. Hence, they argued, they should be given a waiver on the licence fee.
The new policy is expected to lift the ailing telecom industry.
The government has now compensated these private operators for all the unpleasant developments. It has allowed them to migrate to the revenue-sharing system, given them a waiver of licence fee for six months and extended the licence period to 20 years from the existing 10 years.
The government has directed the Telecom Regulatory Authority of India to fix the amount of revenue that the private operators will have to share with the department of telecommunications. As an interim arrangement, the operators will have to pay 15 per cent of their gross revenue to DoT.
QUID PRO QUO
In return for these concessions, the government insists that the operators must pay up at least 35 per cent of their dues by 31 July 1999 before they migrate to the new regime. This may not be hard as most of them have already cleared a fifth of their dues in the face of Jagmohan's campaign.
The balance of the dues will have to be securitised by way of bank guarantees.
The government has also insisted on a lock-in period of five years from the date of signing the licence agreements for the present investors in the companies. No transfer of shares will be permitted during this period. New investors can come in, but existing shareholders cannot exit.
The policy envisages a system of multiple operators against the current duopolistic arrangements. Both the operators in a cellular circle must agree to migrate to the new, revenue-sharing system -- otherwise both will remain under the present regime.
The government has accepted attorney general Soli Sorabjee's opinion that the operators must accept the package in toto and all legal proceedings against the government be withdrawn.
The concessions will be applicable to paging, VSAT and other value-added services, for which modalities will be worked out by the DoT in consultation with the Telecom Commission.
On 30 June the private operators owed the government a staggering sum of Rs 3,800 crore in licence fee dues. This sum included cellular operators' Rs 2,857 crore, basic operators' Rs 735 crore, and paging service operators' Rs 246 crore.
The new policy will give a boost to the cellular service operators in the four metro cities. There are eight of them -- Bharti Telecom and Essar in Delhi, Hutchison Max and BPL in Mumbai, Modi Telstra and Usha Martin in Calcutta and Crompton Greaves and RPG in Chennai. They together account for over half of the total licence fees payable by private telcom service providers.
The licence fee regime requires each cellular operator to pay Rs 600 per subscriber per month to the DoT as licence fee. The revenue sharing regime will require that they pay only 15 per cent of their gross revenue and estimates show that this will be less than half the existing fee of Rs 600 per subscriber.
Some non-metro operators like Birla AT&T, Modicom, AirCell Digilink, Tata, BPL Srinivas Cellcom and JT Mobile had quoted large amounts as licence fee in their original bids. They would have to pay only 15 per cent of their gross revenue.