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Telcos hit by financial crunch

The ongoing 2G spectrum scam has had an unexpected impact on telecom service providers: funds are drying up.

india Updated: May 04, 2011 22:57 IST
Manoj Gairola

The ongoing 2G spectrum scam has had an unexpected impact on telecom service providers: funds are drying up.

“In the last two calendar years, we raised close to $3 billion to fund projects,” said a senior official of a national telecom service provider. “Foreign banks and investors did not even ask for tripartite agreements. In last six months, the banks want tripartite agreements — and the government has not signed any.”

This is evidently true for all telecom service providers, old and new. The big operators have to raise funds for rolling out 3G services and for strengthening their existing 2G networks. http://www.hindustantimes.com/images/HTPopups/040511/05_05_11-buss-21d.jpg

The new players on the block need funds to roll out services in the first place.

“Telecom was the most sought-after sector six months ago,” said the head of a pan-India telco. “Now it has become tainted and risk factor has increased making it difficult to raise funds. And the government is also delaying the signing of the tripartite agreements.”

Tripartite agreements — among the government, the licence holders and the banks — are an important instrument in raising funds in the telecom sector. The spectrum that comes with the licences is not transferable. The tripartite agreement ensures that the banks would be able to recover their funds by selling licences (and hence spectrum) in case a company defaults on repayment.

The bank securities and fraud cell of the Central Bureau of Investigation had started an inquiry against unnamed bank officials for providing loans to certain companies. However, it did not find any wrongdoing and closed the probe.

Officials of the department of telecommunications (DoT) are however playing safe. “We are taking all precautions in signing the agreements,” said a DoT official. Result: applications for tripartite agreements for all operators are pending.