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July 30, 1998


Birla AT&T may hang up

Email this story to a friend. Beleaguered cellular operator Birla AT&T Communications is facing the prospect of winding up operations.

Its lenders are unwilling to provide any new loans in the wake of the central government's indecision on the industry demand for the two-year moratorium on payment of licence fees and extension of licence by five years.

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Company sources say the management has already sounded its employees over the uncertain future and the likely job losses if no decision comes through from the government in the next two months.

"We will end up becoming a BIFR (Board for Industrial and Financial Reconstruction) case if the government does not act within two months on our plea for a two-year moratorium on fees and extension of licence," cautions Rajan Mathews, president and CEO, Birla AT&T.

The company operates in Maharashtra (except Bombay), Gujarat and Goa circles.

Mathews has been quoted as saying that the urgency over moratorium on payment of licence fees and extension of licence is because the company needs to show its bankers how it can repay its debt.

Bankers are cautious about lending to cellular operators since the rupee has depreciated sharply. Besides, they are waiting for the government response to the two demands.

Another major concern for the lenders has been the slowdown in economic growth.

Birla AT&T's lenders, a consortium of banks led by the US-based Bank of America and Toronto Dominion, Canada, is said to have put on hold any further lending to the company.

As per the terms of agreement between the department of telecommunication and the cellular operators, extension is allowed only in the eighth year of operations.

However, Mathews defends the cellular industry demands on the grounds that the telecom policy of 1994 enunciated by DoT has not met the business projections.

"We overestimated projections as the government had said that there will be an eight to 12 per cent economic growth in GDP, whereas it has been in the vicinity of 6 per cent," he pointed out.

Besides, the appetite of the middle class for cellular phones has not materialised as it is feeling the pinch of high inflation and other problems associated with the economic slowdown, he said.

To compound woes, the handset cost has shot up because of the 4 per cent countervailing duty announced by the finance ministry.

"The combination of all these factors has worked against us. We are 50 to 80 per cent down in terms of turnover and subscribers from original projections and finding it difficult to sustain operations," he admitted.

In a move to preserve cash, Birla AT&T has already taken up some austerity measures, including curtailment of its business plans, cutting down on recruitment and advertising budget.

However, Mathews feels, things could change for the better if the government takes the right decisions. "If this happens the future prospects for the cellular business in the country would be tremendous," he predicted.

"The government has to take the initiative and address the problems to make its telecom policy a success and not leave it to bureaucrats," he added.

Meanwhile, Birla AT&T Communications posted a net loss of Rs 600 million from operations in calendar 1997. The company suffered an additional loss of Rs 3.18 billion due to payment of licence fees to DoT.

The interest cost on the over $110 million loans taken by the company works out to $15 million per annum. If the present crisis continues, the company is likely to default on interest payment, besides the payment of principal.

In case of the government agreeing to its plea for sops, the company will need $400 million in debt and equity for investment in infrastructure, old debt repayment and licence fees payment.

The company is already on the lookout for a new equity partner to inject the capital required.

"But as things stand now, not a soul will be willing to invest in the cellular industry in the country, with the exception of probably Bombay and New Delhi," Mathews claimed.

- Compiled from the Indian media

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