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Tuesday, Jun 29, 2004

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DoT may cut bank guarantee for mobile, basic providers

Thomas K. Thomas

New Delhi , June 28

THE Department of Telecommunications (DoT) is looking at reducing the performance bank guarantees for cellular and basic service providers to bring down their cost of operation. This comes on the heels of the Government's recent announcement of 50 per cent reduction in bank guarantee only for long distance service providers.

Senior DoT officials told Business Line that the Government is looking at all possible measures to bring down the cost for operators. However, it would be done only if it does not have any revenue implications for the Government.

"Performance bank guarantee was imposed at the time of issuing licences on service providers for roll-out obligation. But in the new unified licence regime, maybe, the bank guarantee may not have to be so high," said a DoT official.

If the move comes through, it would give the operators a cushion to lower tariffs further, though not by a huge margin, since the cost benefit accruing to the operators would be only a few crores of rupees.

The telecom industry had been seeking lowering of the performance bank guarantee since neither the operator nor the Government was gaining from it. Only the banks that issued the guarantees were benefiting from the annual charges for the service, which ranges between eight per cent and 15 per cent of the amount.

Currently, cellular and basic operators have to get a bank guarantee varying between Rs 20 crore and Rs 2 crore per circle.

That apart, they also have to pay their revenue share for three months in advance.

This means that a company like Reliance Infocomm or Bharti Cellular with a countrywide network would have had to get a bank guarantee worth Rs 200-250 crore at the time of taking licences.

Mr S.C. Khanna, Secretary-General, Association of Unified Telecom Service Providers of India, said that the move would bring relief to operators in a big way.

"We have suggested that the Government could take a corporate guarantee instead of a bank guarantee. The current policy is proving to be a burden for operators."

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