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|January 16, 1998||
DoT may go easy on cellular telecom companiesThe Department of Telecommunications and the finance ministry are considering a proposal by cellular telecom companies for a two-year moratorium on payment of licence fees and an extension of the licence period from 10 to 15 years.
This marks a change in the government’s reluctant stance regarding the proposal. To aid it in taking a decision, DoT has appointed the telecom advisory group of Industrial Credit and Investment Corporation of India Limited as an independent consultant to study the cellular operators’
Based on the conclusion of the ICICI team, the government is expected to take a decision on the proposal by March this year, sources said.
The Cellular Operators Association of India had requested DoT and the finance ministry for a two-year moratorium on payment of licence fees last year. According to the proposal, such a moratorium on payment of fees would ease the huge initial funding requirements for cellular projects.
Typically, cellular projects take between three and six years to break even (defined as making profits before depreciation, but after interest and tax). In this period, expenses like equipment purchase, interest payments, operating expenses and licence fee instalments have to be funded by equity and debt.
However, if a moratorium on the payment of licence fees is allowed, the companies aver the dependence on equity and debt will be eased.
"Since the outgo on account of licence fees is significant, easing it even for two years will help companies a lot. In the later years, the payment (of licence fees) can be funded through revenues," a cellular company executive explained.
According to projections of the cellular companies, revenues rise sharply after the initial few years. So, the executive said, an extension of the licence period by five years would help arranging finances for cellular projects.
"With a 10-year period, banks have just three-four years to recover the funds they lend to the projects. By making it 15 years, they will have more time to recover funds and will reduce lending risk to that extent," the executive added.
The ICICI group is expected to study the expenses and projected cash flows of cellular companies. Based on the findings of the group, DoT and the finance ministry are expected to take a decision on the two-year moratorium on payment of licence fees and extension of the licence period.
Both DoT and finance ministry officials have said that they are "open to both decisions" (a moratorium and extension of licence period).
Earlier, sources had hinted that an extension of the licence period is likely, but a two-year moratorium would be a difficult decision considering the not-too-buoyant government revenues in the current year.
- Compiled from the Indian media
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