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Cellular operators to beef up capital - Views on News from Equitymaster
 
 
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  • Oct 4, 1999

    Cellular operators to beef up capital

    According to newspaper reports, a number of cellular operators are considering plans issue equity in order to strengthen their capital base. This follows the piling up of large accumulated losses to the tune of Rs 70 bn in their books.

    The Indian cellular industry is a case study on how not to bid for cellular licenses in developing countries where there are no precedents. When the Indian cellular telephony services markets were thrown open, the private sector bid absurd amounts based on the premise that a strong latent demand for the service existed in India. However, even after the three complete years of operations, the service providers are licking their wounds, inflicted by the mounting losses, resulting from a low subscriber base and a low per subscriber usage rate.

    The Indian cellular industry has received some reprieve in the form of the introduction of a revenue sharing regime as against the fixed licence fee regime prevailing until now. This will ease the cash flow related problems to quite an extent. However, the 40 or so cellular operators have to make a one time licence fee amounting to Rs 30 bn to be eligible for entry in the revenue sharing regime.

    In order to beef up their capital, and so become eligible for assistance from financial institutions, the operators are actively considering the issue of fresh equity.

    The cellular operators are likely to benefit from the introduction of the revenue sharing regime. However, with MTNL having launched its mobile services in Delhi already, competition is likely to heat up, and this could further delay the break even of the private cellular operators.

     

     

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