The Telegraph
Since 1st March, 1999
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Govt hosts Xmas party for telecom

New Delhi, Dec. 24: The government today distributed a bagful of Christmas lollies to the telecom industry in the form of financial concessions that will cost the exchequer Rs 1,217 crore over a four-year period starting April next year.

Communications minister Arun Shourie — who was cast in the unlikely role of a Santa Claus bearing gifts for the petulant and unruly children in the telecom industry — said, “The government will reduce its revenue share by 2 per cent across the board for operators in cellular, basic and unified licence categories and this will cost it Rs 885 crore annually. An additional 2 per cent concession to cellular operators will cost Rs 83 crore annually to the government, or Rs 332 crore over a four-year period.”

The decision comes into effect from April 1 next year.

The additional concession to the cellular service providers — a sort of appeasement bonus after it cleared the way for a universal service licence regime that will put WiLL players like Reliance and the Tatas on a par with the cellular operators — has been welcomed by the industry.

The additional concession is being given to create a level playing field by offsetting the financial loss that cellular operators are expected to suffer as a result of allowing the limited mobility players to offer full-scale mobility services.

Today’s decision is likely to bring an end to the tortuous litigation between the cellular operators and the limited mobility players.

As a first step, the cellular operators decided to withdraw their case in the Supreme Court against the wireless-in-local-loop (WiLL) services.

The additional 2 per cent concession is being given only to the first and second cellular licence holders in a circle. The benefit will not be given to the operators in metros circles of Delhi, Calcutta, Chennai and Mumbai.

Currently, the operators pay a revenue share of 12 per cent in circle A, 10 per cent in circle B, and 8 per cent in circle C. The circles more or less occupy the dimensions of states and are determined on the basis of demography and purchasing power.

After the new concessions, the telecom operators will pay a revenue share of 10 per cent, 8 per cent and 6 per cent in circles A, B and C respectively.

The cellular operators, who have been granted an additional 2 per cent concession, will pay 8 per cent, 6 per cent and 5 per cent for circles A, B and C respectively.

The cellular operators in circle C will have to 5 per cent and not 4 per cent because all operators will have to pay a minimum of 5 per cent for the USO (universal service obligation) fund.

All the operators will have to pay a minimum of 5 per cent for the Universal Service Obligation (USO) fund, which is awaiting the President’s approval.

Parliament passed an amendment to the Indian Telegraph Act 1885 this week the creation of the corpus which will be used to provide telecom services in unremunerative and rural areas.

The government also promised to raise the ceiling on foreign investment in the telecom sector from 49 per cent to 74 per cent. This decision will directly benefit those companies waiting to kick-start a round of mergers and acquisitions that will bring about consolidation in the highly fragmented industry.

There is, however, a rider: foreign investment comes in the form of direct investment through foreign partners in telecom ventures, and through foreign institutional investors (FIIs) who do not actually run the companies.

The increase in the foreign investment limit will be allowed only on the FII component. “Foreign direct investment will be capped at 49 per cent,” Shourie said.

The communications minister also said a joint proposal prepared by the finance and communications ministries would seek the cabinet approval to raise the investment limit to 74 per cent.

Shourie said the government would also shortly announce guidelines for intra-circle mergers. At present, telecom companies can only acquire the operations of rivals in circles where they do not have operations.

A telecom circle can have up to four players — a proviso that the government insisted on to ensure competition. But it is now increasingly evident that operations are never viable if there are too many players. The industry is now resigned to the idea of having only four of five national-level players over the next few years.

Shourie said the finance ministry would begin discussions with financial institutions on the possibility of working out debt restructuring packages for cellular operators facing a severe financial crunch.

Cellular operators had pointed out that huge licence fee and changes in the tariff had resulted in a loss of about Rs 7,000 crore.

Deepak Parekh of HDFC, who had made a presentation before the Group of Ministers GoM on Telecom, had pointed out that there is a need to provide financial assistance to a few cellular players.

The telecom regulator and the finance ministry had also undertaken a study to assess the loss.

“The decision to help them by reducing the revenue share that the telecom players pay the government and also intervene in the negotiations with financial institution has been taken based on these inputs,” said Shourie.

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