Govt asks BSNL to review Wimax deals entered into during A Raja's tenure

The government of India has asked Bharat Sanchar Nigam (BSNL) to review the franchisee agreements it entered into with around half a dozen companies last year for rolling out Wimax high-speed Internet services. The government has sought mitigative action, but is not reported to have sought a cancellation of the deals.

The letter, which seeks voluntary reviews of the agreements by BSNL, was sent earlier this month and sets a deadline of April 30 for response and 'action taken report' from the government-owned telecom provider.

A department of telecommunication (DoT) official said the letter was sent after a committee, set up in February, found that the terms offered to the franchisees were "too liberal" and BSNL could have sought a higher share of the profits from the Wimax service. BSNL hired franchisees for nearly all its circles in the country to roll out Wimax services over the last 2-3 years, after conducting a bidding process.

The government, however, is not likely to intervene in the affairs of the company as it had in those of Antrix Corporation to cancel a satellite deal, he added.

After awarding three of the most lucrative states to US-based Soma Networks in a controversial deal shortly after Raja took office in late 2007, BSNL had conducted public bidding for awarding most of its remaining circles in 2009.

The 2009 bidding for 12 circles was won by four firms, most of which were backed by equipment vendors such as Cisco Systems, ZTE and the Israel-based Wimax chip maker Alvarion.

While the committee is not reported to have found anything improper with the bidding process itself, it has questioned the terms offered to the franchisees.

Under the franchisee model, which was framed back in 2007 under Raja's push for 'PPP' or public private partnership, BSNL selected a private sector partner to install the physical network, operate it, design the services, promote and advertise the service and bill and collect the revenue.

BSNL's move to 'outsource' its Wimax business was criticised by some, but the then telecom minister A Raja had pointed out that the franchisee model was 'low risk' as it assured zero losses to BSNL.

BSNL had been suffering under heavy operating losses for several years due to run-away costs and consistent loss of market share to aggressive private sector players and the 'asset light' model was considered a safe bet at the time.

BSNL's own contribution would be in the form of the spectrum (for which it later had to pay a stiff Rs8,300 crore) and the back-end services in the shape of towers and connectivity to the base-stations.

In return, BSNL would get a fixed share of the revenues (the subject of the bidding process) and a monthly fee to recover the spectrum charge it would pay for the Wimax airwaves.

At the time the franchisee model was being put in place, the monthly spectrum charge payable by the franchisee was not known. It was subsequently fixed at Rs8,300 crore payable over 15 years based on the outcome of the wireless broadband spectrum auction held in May 2010.

The franchisees have already their dissatisfaction over the continuing uncertainty over the terms of their contract with BSNL. Most were ready to roll-out their services by January this year, but held back due to the ongoing scrutinty by Sibal of all deals struck during Raja's tenure.