Can8217;t celebrate yet

The recent announcement by the government to extend the licence period for circle cellular operators is basically a reiteration of the ex...

The recent announcement by the government to extend the licence period for circle cellular operators is basically a reiteration of the existing licence terms and conditions where extension of five years beyond existing 10 years is already built-in. Even in the present context, as the government has given a greater degree of finality to the issue, for the operators the suspense continues as terms are still not known and will be referred to Telecom Regulatory Authority of India for recommendations which will obviously take time.

The announcement offers little to private cellular operators to celebrate as the industry8217;s request for a two-year moratorium has not been addressed. The moratorium request cannot be viewed in isolation from the extension demand as the terms and conditions applicable beyond 10 years will become relevant only if the business viability is ensured in the earlier years when the projects are making huge cash losses.

The delay in revenue generation has been the prime reason why theoperators have been asking for deferment of licence fee payments in the third and fourth year of the licence period. This has arisen out of a combination of reasons but mainly involving delay in network roll-out of companies which is dependent on government clearances and secondly, sharp variations in market-based assumptions of revenues per subscriber. This again arose out of failure of economic growth projections, statistical data for which were given out by various government bodies and were used by us as the basis of the future growth assumptions.

It is a known a fact that in the four metros comprising only one city, it took nearly one year for the business to commence. And in circles which are much larger in dimension, it takes atleast 18-24 months for some reasonable coverage of the circles to happen. Hence the policy of charging licence fees from day zero brings in untold burden on the project adversely affecting the business viability.

So far, operators have had to depend on equity-based financingand all serious operators have had to put in high amounts by way of equity to enable the projects to take-off. Modicom Networks with a license fee investment of close to Rs 500 crore is amongst the top three companies in India if we were to go by the licence fees already paid and this should be taken into consideration before any company is now declared a defaulter.

At a stage when large equity injection has already been pumped in by operators, we are looking for government relief in licence fee payments by way of rescheduling of payments and that also based on paying interest rate same as what government has chosen as the discounting rate of 16 per cent in the tender.

We had requested for this support from the government since licence fees constitute almost 50 per cent of the project cost in the first 10 years and banks/FI8217;s do not accept license as an asset cover.

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If the government still insists on no deferment8217; then it must lay down clear-cut norms for such infrastructure projects 8212; debt equityratio of 4:1 as in power sector and to consider licence fee as part of asset cover to banks.

For long term growth of the infrastructure sector it should be the government8217;s endeavour to make private companies pump in funds in project equipment/market development and not just licence fee. Licence fee instead should be made into a win-win solution of revenue share linkage with terms to be decided by TRAI.

The author is the CEO of Modicom Networks.