A)Business Risk:

1) Regulatory risks-- Crisil believes that the business risk profile of CMTS projects has been strongly influenced by the regulatory environment and the role of the government-owned entities, both as an operator and a regulator in the sector. It is of the opinion that though regulatory issues would continue to be resolved, it is unlikely that DoT or government would initiate unilateral steps which would undermine the business outlook for CMTS operators. Crisil considers that the dialogue between DoT andprivate operators is expected to yield a stable and predictable regulatory regime for such services. Besides the macro-level regulatory considerations, Crisil specifically assesses the status of the specific clearances and regulatory approvals.

2) Analysis of market and service area: Crisil considers the analysis of market and service area for the CMTS operator, as one of the most critical components on the risk assessment exercise. Crisil analyses the economic profile of the circle in detail, on the basis of secondary data related to the sectoral composition of the net state domestic product (NSDP), the nature and distribution of the secondary sector and the prominence of the services sector.

3) Technology related issues: 64In Crisil's perspective, technology issue is more related to technical and managerial capabilities developed by the individual operators, rather acceptability, reliability and upgradability of the technology options. It considers that the GSM standard stipulated byDoT is a world class technical platform and the active presence of global equipment manufacturers and network designers would substantially mitigate the performance related risks for such projects.

4) Operations and management issues: Crisil lays specific attention on the existing and the proposed operations and the management of the CMTS project and the strategic allocation of the operator's resources for the initial roll-out and the stabilisation phase.It stresses on the entire value chain of operations, starting from subscriber identification to subscriber enrollment and further to billing, collection and subscriber retention activities. Crisil considers rigorous subscriber information and credit verification practises as the most critical measure for maintaining selectivity and reducing bad debts.

The marketing and promotional strategies of the CMTs operator, specifically in reference to pricing of hand-sets, bundling of hand-set and tariffs related schemes and higher committed usage-lowertariffs are analysed in detail. The pattern in which such activities are manned, the MIS and control systems installed, the incentive structure for sales promotion and the promoter's past experience in such activities is also assessed by the rating agency.

Crisil views the entire operational and managerial structure of the operator's project in the context of the competitive scenario in the service and license area. Crisil assesses the strength of the competitor in the service area, both operationally and financially and the trend in the respective market shares. The responsiveness of the two operators to the changing market situation is also assessed. Crisil's business risk analysis of CMTS operations hinges on the outlook for such telecommunication services and the systemic and managerial capabilities of the respective project promoters to capitalise from the emerging opportunities.

B) Financial risk:

1) Capital structure of the CMTS project : Crisil's analysis of the present and theproposed capital structure of the CMTS project considers details pertaining to the level of equity and debt financing completed and the proportion in which additional resource infusion would be made in the future. Crisil assesses the domestic and foreign equity holding pattern for the project and the plans for equity infusion in the future. This analysis also reflects the overall financial flexibility of the operator to dilute equity in the operating or the holding company for the CMTS project and raise additional resources.

2) Existing financial position-- Crisil's experience in CMTS projects indicates that in most cases, the initial level of financings have been completed by equity infusions by the Indian and foreign promoters, vendor/supplier credit facilities and short term loans given by the group companies. These sources of funds have been deployed towards initial capital expenditure, network capex and license fee outflows. After the scheduled commercial launch of CMTS operations is completed,the operators approach domestic and off-shore lenders for project financing facilities.

3) Cash flow adequacy-- The entire financial model prepared by the CMTS operator, inclusive of all details and assumptions pertaining to operating revenues and operating expenditure. The projected revenue from the operations are measured in terms of revenue per subscriber per month, which captures the impact of all the key variables. Crisil analyses the details of the cash flow adequacy of the proposed project in order to assess the overall financial resilience of the operator and the debt servicing abilities.

4) Financial resources and financial flexibility : Crisil gives significant attention on the financial strength of the promoters and their ability to infuse funds into the operations. Crisil believes that the manner in which the promoters intend to fund the initial losses and contingencies available, in the event of a long gestation period would be of critical consideration.