The Hindu Business Line : Cabinet to take up package for cell operators today

THE long wait for the private cellular operators could finally be over on Thursday when the Union Cabinet is scheduled to take up the compensation package, which includes a reduction in their licence fees, permission for intra-circle mergers and the hike in foreign direct investment (FDI) limit.

The package announced in end-December, after the cellular operators agreed to withdraw their petition in the Supreme Court, is expected to be passed by the Cabinet without much ado.

The fresh package of relief measures for the telecom industry includes a reduction in the existing revenue-sharing licence fees to the tune of Rs 968 crore annually and has to necessarily be passed by the Cabinet, before it is introduced. Although the Government is going to present a vote-on-account in early February, instead of a full Budget, this decision is expected to be announced before that, because of the promise given to the cellular operators.

The licence fees for basic service providers, GSM cellular operators and CDMA mobile operators would be reduced by two percentage points from fiscal year 2004-05. Further, the first and second GSM cellular licensees in all circles, except the metros, would get an additional two percentage point reduction in the licence fees for a period of four years, subject to the proviso that a minimum of 5 per cent of adjusted gross revenues (AGR) has to be paid by them annually for the universal service obligation fund, which has been earmarked from the overall licence fee structure.

The existing licence fee structure for basic as well as cellular operators is 12 per cent of the AGR for metro service areas and category A circles, 10 per cent for category B circles and 8 per cent for category C circles.

To add to this, the Department of Telecommunications has also revived its earlier proposal to hike foreign investment in telecom to 74 per cent from the existing 49 per cent as long as the additional inflows come from foreign institutional investors. A Cabinet note on the matter has been prepared, which seeks to allay fears of the security agencies that had stalled an earlier move.

Another issue that has long-term impact on the cellular operators is the decision to allow intra-circle mergers. As of now, a company which operates in a particular circle cannot acquire stake in another company for the same services in the circle. A relaxation in this rule should lead to a large number of mergers and acquisitions, with many of the smaller operators selling out to the bigger players.

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