As a result of this policy uncertainty, while cellular service providers have at least managed to kick off services, basic service operators (save two, and that too on a small scale), are not being able to do so as institutions are refusing to take exposures till the new policy is clear. In various meetings with government representatives in the past few days, basic service operators have sought different treatment from that of cellular operators.

"In the case of cellular operators, unusuallyhigh bids are the cause of their current plight. In our case, it is the government's sop to the internet industry which has led to a situation where institutions are all confused about our viability", said a top industry source.

Sources said that even Hughes Ispat, by far the largest bidder at Rs 14,000 crore (the circles of Maharashtra and Karnataka), which has kicked off services on a small scale in Pune and Navi Mumbai, is strapped for funds to undertake aggressive expansion and is struggling to achieve financial closure.

"The largest bidder mirrors the trend for the industry. The company was set to achieve financial closure and had tied up an international syndication but the Pokharan blasts resulted in the deal falling through. At that time, the financial institutions were extremely helpful and talks were on to strike funding deals. But then came the government's various announcements on a new policy. This was followed by the discussion paper. At the end of the day no new policy has come as yet butwhat has happened is that all investors, including financial institutions, have been left confused over the course for the future. Needless to say, this confusion has led them to sit on their hands and not extend any fresh loans", industry sources said.

As far as basic operators are concerned there are two major stumbling blocks which have cropped up primarily because of the way the internet policy is shaping up.

"Private ISPs will flow data packages and this will lead to a risk of voice being transmitted through the Net as well. Even though the government has not allowed voice to be transmitted, there is no way it is going to able to ensure that this does not happen as it is not possible to police all package flows taking place through 50-plus private ISPs. This move, although very good for the internet industry, will hit the revenues of basic service providers", said a source at a basic service provider.

"Secondly, the proposal to allow these ISPs to set up last mile linkages will eat into ourrevenues as well. We were expecting major revenues from this but if the government concedes this demand then we get hit further", the source added.

"To top it all there is a doubt on whether more players would be allowed to enter the fray. All these things lead to drastic changes in business plans and institutions are to a large extent right in not taking exposures to projects knowing very well that the impending change in the policy could lead to the business plan going totally awry", said the source.

The end-result is that unlike the cellular players, the basic operators are not being able to even start operations. Even in case of Hughes Ispat, it is believed that the company has been forced to go slow on expansion.

It has been able to raise only $ 250 million ($150 million equity and rest through vendor financing) in its second year as against a five-year investment requirement of $1.2 billion.

What is set to deliver the death blow to the industry is the fact that they would need to pay 20 per centof their licence fees by February 15. In the case of Hughes Ispat alone, the licence fee payable for the second year is Rs 400 crore and 20 per cent would need to be paid by February 15.

"There is no revenue coming in as operations are yet to start. It is unlikely to start soon either as there are no funds even as operators are being asked to pay their licence fees. The situation is grave. Apart from putting in bits and pieces of money here and there, most operators have not even been able to procure the equipment yet. Those who have are strapped for funds to kick off operations", said an industry source.