India Encourages Private Telcos with Move

Seven years after India liberalized its telecommunications sector, it has put into place a new license fee structure designed to increase competition and help privately owned carriers.

On July 6, the government allowed privately owned carriers to move to a revenue-sharing formula for license fee payment from a fixed-license fee structure. It also increased the tenure of the license to 20 years from 10 years. It is also forgiving six-month's worth of fees due under the old structure.

With the revenue-sharing fee based on a percentage of a firm's gross revenues, private carriers say there will now be strong growth. "It is a win-win situation for both the government and the operators. The larger the number of subscribers we have, the more money we pay the government," says Manoj Kohli, Chief Executive Officer of Escotel Mobile Communications Ltd. Escotel is a joint venture between Hong Kong's First Pacific Co. Ltd. and India's Escorts Ltd. It operates three regional cellular networks.

Until now, private mobile and fixed-line companies have paid a fixed amount of license fees every quarter, based on what they bid for their license when India auctioned them in 1992 and 1995. This fee had no link to the number of subscribers or the profitability of a company, and was a huge overhead cost for them.

High license fees, coupled with an aggressive incumbent and low subscriber growth, had brought many private-sector firms to brink of bankruptcy. Cellular and fixed-line firms owe the government US$925 million in unpaid license fees as of June 30. They now have the chance to pay what they owe as of June 30, and then move to a revenue-sharing formula by an "effective date" that the government will soon set.

Analysts say revenue-sharing and longer license periods could open the floodgates for much-needed investment, and result in millions of dollars pouring into the sector. "Longer license periods and lower license fees mean these businesses have become more viable. It will be easier for firms to raise money and attract investment," said Sheriar Irani, telecom analyst at Jardine Fleming India.

India has 1.2 million mobile subscribers split between 22 privately-owned mobile operators. It has three private fixed-line carriers operating regionally that have a total of 50,000 subscribers, while the state-owned incumbent, the Department of Telecommunications, operates some 18 million lines. Three other carriers have been licensed, but have not begun operations.

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