The decision, taken on the eve of Prime Minister Atal Behari Vajpayee's visit to the United States, is expected to send a strong signal to international investors in general and those in the telecom sector in particular, about the pace of the reforms' progress.

The CCEA also approved the Wipro Ltd proposal for issue of American depository receipts (ADRs) amounting to $500 million.

Briefing newspersons on the CCEA decision, communications minister Ram Vilas Paswan said VSNL would be required to pay Rs 100 crore as entry fee for entering the domestic long-distance sector, besides agreeing to share revenue with the government. However, being a public sector concern, it will not have to pay the Rs 400-crore roll-out-linked bank quarantee. The government will offer to VSNL an amount equal to the entry fee and the revenue share component as compensation for ending its monopoly in the international area before schedule. The compensation package also includes an `A' category licence for Internet service provider (ISP) operations which will enable it to offer the service throughout the country. At present, the corporation provides the service in six cities.

The government will also share a percentage of revenue generated from international traffic with VSNL, subject to assessment by a consultant firm which is working on the modalities of VSNL's ending the monopoly.

International traffic generated by Mahanagar Telephone Nigam (MTNL) and Department of Telecom Operations will also be routed through VSNL provided it offers quality service.

VSNL officials had been opposing the earlier attempts to advance the termination of VSNL's monopoly on international long distance. The argument put up by VSNL was that when it had gone for its ADR in 1994, it had promised shareholders that the government was bound to protect VSNL's monopoly till 2004.

Now that the government has reduced the time-frame, VSNL will have to find a way around the problem, since it is bound to have an impact on the market capitalisation of the PSU.

However, this is a positive step for subscribers who, as Mr Paswan points out, end up paying much more than what they should. For instance, a call from India to the US costs nearly 500 times the price that a US citizen would pay to make a call to India. This anomaly had put the government in a tight spot as other countries had been demanding that India reduce the cost.

The Wipro proposal is for issue of ADR/global depository receipts (GDRs) amounting to $500 million (inclusive of premium), which would include any green-shoe option, or equity shares not exceeding two per cent of the total issued equity capital, whichever is lower. In addition, the company also proposes to issue ADRs/GDRs-linked employees stock option (ESOP) up to a maximum of $150 million. The total non-resident holding after the issue of ADR/GDRs, including ESOP, will not exceed 10 per cent of the issued and paid-up capital of the company.

The proposed equity structure of the company would, after the issue, be as under (figures against each item indicate number of shares, par value of Rs 2 held and figures in brackets indicate percentage of shareholding): Indian financial institutions 821,481 (0.35); Indian companies 187,713,677 (79.96); mutual funds 384,104 (0.16), banks 94,405 (0.04), trusts 1,301,080 (0.55); public 26,855,449 (11.38); NSDL & CSDL (in transit, hence the nature of shareholding cannot be determined) 2,315,843 (0.98).

Thus the total resident shareholding works out at 218,166,136 (92.45 per cent).

Total non-resident shareholding of 15,506,498 (6.57 per cent) comprises FIIs 6,114,733 (2.59); OCBs 153,316 (0.06), NRIs 2,405,322 (1.02); and ADR issue (to international investors and non-resident and foreign employees) 5,833,127 (2.9).