RCom, Reliance Telecom allowed to exit USOF project - Angel Broking

A law ministry's arbitral tribunal has allowed Reliance Communications (RCom) and its wholly-owned unit Reliance Telecom to exit from a Universal Services Obligation Fund (USOF) project under which mobile companies get subsidy to share mobile infrastructure and offer telephony services in rural and remote areas. The two companies have been allowed to exit from all non-implemented USOF sites across the country without any financial liabilities. However, they have not been given any compensation on the account of loss of business. The companies are not entitled to any damages or compensation in respect of expenditure occurred for purchase of RCom clarified that it will continue to shell out 5% of their annual revenues towards the USOF, just as other mobile phone companies do. In their pleas, the companies had asked to be discharged from contractual obligations and not be liable for penalties, as they felt that the project was not financially viable. The companies asked the arbitrator to direct USOF to permit them to exit from the agreement and claimed around Rs. 3,300cr, apart from interest, as compensation.

The issue dates back to 2007 when a scheme was launched under the USOF to provide subsidy support for setting up and managing 7,871 infrastructure sites, or telecom towers, in rural and remote areas in 500 districts of 12 states. RCom and RTL had entered into an agreement with the USOF in June that year, under which they took responsibility for setting up nearly half of these towers. Under the agreement, USOF had to hand over ready sites by May 2008, which the fund did not do so for another 18 months, as per the companies' claims. RCom and RTL then switched off over 1,400 telecom towers between November 16, 2010 and January 20, 2011, citing financial unviability, impairing mobile connectivity which was allegedly in breach of the shared mobile infrastructure norms. We maintain our Neutral rating on RCom.

Source : Equity Bulls

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