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New Telecom Policy: A fresh start - Views on News from Equitymaster
 
 
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  • Jul 7, 1999

    New Telecom Policy: A fresh start

    The Government has given its approval for shifting the existing licensees of all telecom services to the revenue sharing arrangement with effect from 1st August 1999. The telecom operators are required to clear their dues by the 31st of July. The government has decided that pending the order of the Telecom Regulatory Authority of India, the telecom licensees will pay 15% of gross revenues as license fee. Also, it has approved a six-month extension in the effective date of licenses in case of basic and non-metro cellular operators. There will also be a lock-in period of 5 years for the present shareholders from the date of the license agreement, while the license period will be extended to a period of 20 years.

    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 license 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 license fee payments, the operators had proposed that a revenue sharing regime be worked out under which the license fee payment would be linked to the revenues earned during a particular period.

    The government's decision is likely to come as a relief to the telecom operators, some of which were buckling under the pressure of the license fee payments. Now that the pressure has eased the companies can be expected to perform better and concentrate on increasing penetration levels of telecom services. The delay in the ratification of the new arrangement had led to a couple of operators selling out their stakes.

     

     

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