HEADLINES
JOBS
COM:PORT
POLICY POLICE
ARCHIVES

Cellular services are making big losses

Most of the losses are due to huge investments in capital equipment and licence fee payments being made by the companies.

The cellular industry's losses are about 40 times the losses being made by the paging services industry. "That (the Rs 4 billion loss) is a legitimate estimate,"

T O D A Y

• Sweating pays • Cellular services bleed • Peter de Jager rebuff • Sun seeks FIPB nod

says T V Ramachandran, executive vice-president of the Cellular Operators Association of India, while corroborating the industry's losses.

The cellular industry in India comprises 22 companies running 42 networks, which account for some 750,000 subscribers. The total cost of providing cellular services works out to Rs 6,486 a subscriber a month. Since monthly revenues hover around Rs 1,200 a subscriber, this translates into a loss of Rs 5,286 per cell phone user: Rs 3.96 billion for the entire industry.

The four major cost heads are licence fees, capital expenditure, operating costs and wireless and interconnect charges, in that order.

The cellular companies pay the government Rs 20 billion in licence fees every year. On the existing cell phone base, the licence fee works out to over Rs 2,200 per cell phone user a month.

Capital costs form the next major expenditure on the cellular companies' profit and loss accounts. According to cellular operators, their total investment in networks has been Rs 60 billion to date. Assuming a recovery rate - a proxy for interest costs and depreciation rates - of 30 per cent, the annual amortisation of capital costs works out to Rs 1.5 billion; equivalent to Rs 2,000 per subscriber a month.

The benchmark acquisition cost is some Rs 5,000 a subscriber in India. Amortising this over two years calculates to a monthly expenditure of Rs 200. All other operating costs are some Rs 1,750 a cell phone user a month. Total operating expenditure: Rs 1,950 per subscriber a month. Finally WPC and interconnect charges amount to Rs 360 a month.

Operators have made three proposals to cut losses. To begin with they have petitioned the TRAI to hike rentals to Rs 575 per month. Next, they have asked the DoT for a moratorium on licence fees for two years. Finally, they have sought an extension of licence period from 10 to 15 years. "An increase in rentals alone will increase monthly revenues to Rs 1,600 per subscriber."

Earlier: DoT may go easy on cellular telecom companies

- Compiled from the Indian media

Tell us what you think of this story