Basic Teleservices, a joint venture between the RPG group and NTT, Japan, had earlier bagged the licence for the Tamil Nadu circle to provide basic telephone and data transmission services.

The joint venture's fate was virtually sealed when NTT decided to pull out. With a price tag of Rs 11,620 crore as licence fee, RPG had found it difficult to find another equity partner, considering that their bid now appears to have been based on over-optimistic projections.

Apart from the licence-fee commitment, the company would need a few more hundred crores to set up the infrastructure. The returns, on the other hand, will be cycled to take care of the borrowings of the company. The decision to restructure may have been hastened by a report in favour of the group exiting basic telecommunication services, prepared by leading consultants McKinsey's.

According totelecom circle sources, the huge resources required were the reason for McKinsey's recommendation that the group pull out of the basic telecom services venture. The sources also added that the licence fee alone would have taken out 11 per cent of the turnover, according to the projections made by the company. And it would have taken the company over eight years to break even, if the projections proved right.

Earlier, Basic Teleservices had failed to pay up the first instalment of the licence fee as stipulated by the Department of Telecommunications (DoT) and subsequently DoT had encashed the bank guarantee amounting to Rs 50 crore.