In a strongly worded letter to the company, DoT has stated that franchising of cellular PCOs by means of a sub-licence is violative of clause 10 of the licence agreement, where creation of a sub-licence is expressly prohibited.

The department further pointed out that it is also an offense under section 20A of the Indian Telegraph Act, 1885, as the holder of the licence will be contravening the conditions contained in the licence.

The ministry also said that a cellular PCO falls within the definition of a telegraph under section 3(1) of the Indian Telegraph Act, 1885, and if a cellular operator establishes, maintains or works a telegraph in contravention of section 4 without any licence from centralgovernment/telegraph authority, it will be committing an offense under section 20 of the Act.

The action by the department will give a major jolt to Koshika's plans of beefing up its revenues by way of cellular PCO service. The company is already facing losses in the cellular business. It has also defaulted on payment of licence fee to the government.

The DoT has asked the company to "immediately stop the franchising of the PCOs and withdraw the franchises already given and in any case within 30 days of this default notice failing which, your licence may be terminated in accordance with the clause 6 and condition 15.1 Schedule B of the licence agreement for breach of the terms and conditions of the same". The department has also warned that if Koshika Telecom fails to comply with its orders, the company will be liable to punitive action as per the provisions of the Indian Telegraph Act, 1885.

Koshika had plans to invest Rs 1,200 crore by 1999-end in developing state-of-the-art technologies includinginstallation of PCOs. The company claims to be the largest cellular network provider in the country reaching up to 2,400 km microwave backbone route.

Koshika is currently operating in four circles in Uttar Pradesh (east and west), Bihar and Orissa. The company claims that it has a total subscriber base of 50,000 currently which it intends to increase to 3 lakh in the next three years.