The Bureau of Industrial Costs and Prices (BICP) will study the financials of four companies Fascel Ltd, Koshika Telecom, Aircel Digilink and JT Mobiles while evaluating a proposal by the cellular industry that it be allowed a two-year moratorium on payment of licence fees.
The study which is expected to be completed in a months time will have a strong bearing on the department of telecommunications (DoT)s decision on moratorium. The Cellular Operators Association of India (COAI) claims that the industry will make losses for eight-nine years (of the 10-year licence period) unless the moratorium is allowed.
Cellular companies have committed to pay more than Rs 2,000 crore in licence fees to the government. In the initial two-three years, when the projects are in their infancy, such payments licence fees, capital equipment, operating and interconnect costs have to be met mainly through equity.
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With revenues falling short of projections, promoters find that they have to increase equity commitments a scenario they are not comfortable with even when future cash flows are uncertain. As a result, several companies are defaulting on payment of licence fee tranches.
The companies aver the financial burden will be less if they are allowed a two-year moratorium on payment of licence fees.
In the initial years if we have a moratorium, in the subsequent years, we will generate enough cash flows to pay off licence fees, B K Modi, chairman and managing director of Modicom Networks Ltd the Karnataka and Punjab cellular licensee and chairman of COAI had told the Business Standard.
BICP is expected to study the cost structures of the cellular companies and establish whether they are indeed making losses.
The industry says it is making negative cash flows to the tune of almost Rs 400 crore a month. Although the companies had projected negative cash flows, it was nowhere in this region, sources say.
However, top DoT officials are not sure on how to ensure that the companies will actually keep to their commitments. What is the guarantee that a company will pay after the moratorium period is over? an official asked.
A bank guarantee to back the licence fee commitment has been suggested, but banks may be unwilling to provide such guarantees since DoT has sought to encash such guarantees several times in the past.