Pune, June 13: The cellular telephone industry is headed for tough times. According to Rajan Mathew, president and chief executive officer of Birla AT&T Communications Ltd (BATCL), about 85 per cent of all cellular service providers in the country would be forced to close down in the next three months while the balance will last only three months longer. Unless the government steps in with the dual life-line of a two-year moratorium on the payment of licence fees and the extension of the licence period from 10 to 15 years.BATCL, whose licence fee payment for its two circles, Maharashtra (excluding Mumbai), Goa and Gujarat, is due for payment in September 1998, will have to ask for an extension, he added. The financial troubles of the service providers stem partly from the estimates made about the number of users and the revenues to be generated. Mathew admitted that their estimates in terms of revenues and users had been 70 per cent higher than the actual while delays in granting clearances had put them 18months behind schedule. Which adversely affected their business projections.
BATCL, which is investing about US $35 million annually on infrastructure, is likely to require another "big" infusion of $400 million through debt and equity, "to close the gap." It already has a debt-equity ratio of 90 cents to every dollar of equity. If it raises the $400 million loan, debt would go up to between $1.25 to $1.50 to every dollar of equity.
However, the issue of raising additional funds would come later, after the issues of a two-year moratorium on licence fee payment and an extension of the licence period from 10 years to 15 years are resolved, Mathew said, since bankers are reluctant to lend and the service provider cannot continue to plough in equity.
He pointed out that large sums such as their requirement, would necessarily be sourced from foreign banks, which were unwilling to lend against a 10 year licence, since the average life of the debt itself would be about seven years. A 15-year licence, whilestill seen as "hazardous" by foreign lenders, at least offered them a chance. Mathew added the extension of the licence was within the purview of the existing licence itself.
While the non-metro cell service providers did not get even the one-year moratorium which metro operators got to build out their services, the latter will, from October 1998, have to pay Rs. 6,000 per subscriber. This is believed to have led to metro operators stopping their marketing effort for more customers.
While officials at BATCL declined to put a figure on the accumulated losses, these are believed to be considerable. Its 10-year licence fee for its two circles is Rs 3,451.80 crore, which amounts to an annual fee of about Rs 150 crore each for the two circles.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
