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DoT: Lending a helping hand - Views on News from Equitymaster
 
 
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  • Jun 22, 1999

    DoT: Lending a helping hand

    The Department of Telecommunications (DoT) is preparing a fresh proposal for the telecom services industry in line with the opinion of the attorney general of India, Soli J Sorabjee. The new proposals include the extension of the effective date of the telecom licences by six months and giving an option to the operators to switch to a revenue sharing regime from the existing fixed licence fee.

    In bidding for the various telecom circles, private operators had bid very high, based on the premise that there existed a large market for private cellular and basic telephony services. However, their revenue projections went haywire with revenues falling far short of the projected figures. Coupled with this the operators were saddled with high licence fee, which had to be paid over a period of time, irrespective of the revenue collections. This double whammy has led to large-scale losses in the private telecom services industry. To control their losses, and give them some respite from the large cash outflows on account of the licence fee payments, the operators had proposed that a revenue sharing regime be worked out under which the licence fee payment would be linked to the revenues earned during a particular period.

    This proposal to shift to a revenue sharing regime, if accepted, is expected to ease the pressure of the licence fee payments on the service providers. Moreover, the extension in the effective date of the licences will make up for the delay in launching the services, which was mainly due to the delay in getting various government clearances. The new system, if accepted, will come into effect by the 1st of July 1999.

    The recently published Frost & Sullivan report titled 'Strategic Review of the Indian Cellular Services Market' mentions that the burden of the licence fee obligations did not allow any operator to break even in FY99. The report goes on to predict that a shift to the revenue sharing model would be the prime driver in the consolidation of the Indian cellular market during the latter half of FY2000.

     

     

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