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July 7, 1999
In a pre-election bonanza to private telecom operators, the government has allowed the migration of existing licensees of basic, cellular, paging and other value added services from the present licence fee regime to a revenue sharing agreement.
The new order will be effective from August 1, 1999.
This is in accordance with the New Telecom Policy, announced by the government on March 26, 1999.
Information and Broadcasting Minister Pramod Mahajan has said that the integration of licences issued under the Telecom Policy of 1994 into the New Telecom Policy of 1999 would not be retrospective but only from the prospective date to be decided by the government.
The payment on arrears of licence fees including interest up to the prospective date would have to be made. Only then would an operator be eligible to migrate to NTP-99.
A large number of licensees under the 1994 telecom policy were not able to pay the licence fees that they had agreed to. They have been petitioning the government to allow them to switch over to the revenue sharing formula under the new policy.
However problems of contractual agreement came in the way of shifting to the new regime.
Now, Mahajan says that after extensive consultations and analysis of legal opinion the present package has been prepared. The package should resolve problems of existing operators while protecting all legalities.
Mahajan says the requisite bank guarantees for the total amount of arrears, including interest, will have to be provided for the period till the arrears are cleared.
This should enable the telecom industry to emerge from its financial crisis, now lasting for the past two years.
But the government is expected to lose around Rs 19.2 billion per annum as a result of the Telecom Regulatory Authority of India's recommendation.
Another significant decision has been that of opening up the FM radio broadcasting services to the private sector. However, the decision will not affect the existing FM services of the government owned All India Radio.
The government proposes to give licences in 40 cities initially, which would enable it to offer 150 new FM channels in the country.
The government has also allowed the sale of 19 million shares of MTNL and one million shares of VSNL.
Industry reacts with unbridled joyThe industry is euphoric about the developments. A statement of the Confederation of Indian Industry says "The cabinet's decision has vindicated the industry's stand that the transition is legally tenable. The move will improve the country's image and investor confidence which would also have a demonstrative effect on other sectors of the economy."
The CII adds that the next steps should be to corporatise the Department of Telecommunications. An executive directive should be issued to separate DoT's functions of policymaking and service providing, it argued.
''The migration and revenue sharing regime along with provision of rescheduling of licence fee payments will relieve private operators from financial hardships,'' CII claimed.
CII added that the initiative would enable operators to engage in constructive dialogue with the DoT and the TRAI on issues relating to terms and conditions of the new payment structure.
The CII said the TRAI should now expedite the process of deciding the revenue sharing mechanism, entry conditions for new operators in the circles and conditions on competition in domestic long-distance services.
The Associated Chambers of Commerce and Industry of India said the decision would send positive signals to domestic and foreign investors.
Assocham President K P Singh hailed the decision. ''It is a bold political intervention in a situation where the system was unable to find solutions to the problems of a beleaguered industry.''
Singh added that the cabinet decision conforms to recommendations of the Assocham and the Telecom Industry and Service Association.
P K Sandell, president of TISA and chairman of Assocham's telecom committee, hoped that the cabinet would now correct inadequacies in management of the privatisation process that has been practiced so far by DoT.
Sandell added that all charges that private operators have to pay whether for spectrum or connectivity and value added services imposed by DoT have been based on the principle that their monetary gains must be maximised irrespective of whether market conditions warrant the high rates.
Assocham and TISA hope the TRAI would now be permitted to look into the entire structure of these charges and revise them so that they are not one-sided impositions.
''The government should also review the membership of Group on Telecom so that industry representatives are included in the group and draft of the New Telecom Policy 1999 is suitably revised to bring about full convergence in the telecom sector,'' Sandell said.
''This alone would provide universal access to telecom facilities to the Indian people,'' he declared.
The Federation of Indian Chambers of Commerce and Industry said that the government's decision has ended a long period of uncertainty and will give much need fillip to the telecom sector.
The extending of licence period to 20 years from the existing 10 years will give enough time to service operators for providing better quality services with confidence.
In a statement, FICCI said that the government's decision would also facilitate financial institutions to help the industry by rendering unhindered flow of requisite capital.
FICCI suggested that the revenue sharing figure should be decided on the cost factor as well as the revenue earned by the company so that operator can operate profitably and also provide quality services.
The chamber, however, regretted that amendment of the Indian Telegraph Act 1885 and the Indian Wireless Act 1953 are yet to be implemented and no visible action has been taken on these issues.
Sunil Mittal, chairman and group managing director of Bharti Telecom Limited, said the decision to move on to a revenue sharing formula is a big move forward for the telecom sector which is full of opportunities.
''We are now heading for a new chapter in the Indian telecom sector. I am glad that the prime minister's promise has been delivered,'' Mittal said.
Nalin Tikkoo, chief executive officer of Essar Cellphone, said that the government's move on long-standing demands of the cellular industry would inject fresh life in the Indian telecom industry.
''We welcome the decision allowing existing cellular operators to shift to a rational revenue sharing regime as this would ultimately translate into a gain for the common consumer,'' he said.
The Cellular Operators Association of India agreed that the decision would be a first step in resolving the confidence about the telecom sector.
The COAI elaborated that revenue sharing, a strong level playing field approach and focus on the consumers are principles enshrined in the NTP 99 that would greatly benefit the sector, country, the economy and the consumer.
''The revenue sharing model of licensing will also see the government truly become a stakeholder in private sector investments in telecom,'' a statement issued by the COAI said.
The Association of Basic Telecom Operators said that the cabinet decision clears almost all roadblocks that had hindered progress in the telecom sector so far.
''The latest in telecom technology will now be available in India. Telecom will be the backbone of information technology revolution in the 21st century. The government's decision marks the beginning of a new era in Indian telecommunications,'' ABTO said.
ABTO claimed that by transitioning all existing telecom operators to a revenue sharing policy regime the government has made rapid expansion of telecom services and growth a reality.
ABTO said that the decision would further enlarge and strengthen the TRAI's role as promised by the prime minister.
In the basic telephony sector, actual demand between 1991 and 1997 showed an average growth rate of 16.5 per cent per annum. Based on this growth rate, the demand in 1997-2007 works out to 81.8 million telephones, requiring an addition of more than 60 million lines in these years.
At a conservative estimate, the total amount required between now and 2010 will be in the range of $100 billion (About Rs 4.3 trillion).
ABTO feels that these kinds of investments could come through only with active participation of foreign investors.
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