Why RCom is defaulting on its USOF obligations

Answer: it is bleeding. After having bid aggressively for becoming a USOF service provider, it is now finding the entire project commercially unviable and is either switching off BTSs or abandoning them without the USOF Administrator’s permission. For instance, in Rajasthan alone, RCom is supposed to pay Rs 40,000 a month for each BTS. And for 403 BTSs (provided it is working on all the BTSs), RCom would have had to cough up over Rs 1.61 crore every month.

This is in just one circle. From 13 circles, the amount will cross Rs 15 crore a month! Little wonder it is happy to pay Sibal’s smaller fine rather than meet its obligations which it had voluntarily entered into under USOF.

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In its desperation, RCom sent a unilateral notice dated 7 December 2010 to the USOF Administrator that it was cutting services with effect from the previous month (November 22). The notice said it was switching off all but 46 BTSs, and even these would be terminated in two or three months. It would stop paying power and fuel bills to the infrastructure provider (IP) BSNL.

That’s why DoT had served a show-cause notice dated 21 December 2010, to Devinder Singh, President of RCom - a copy of which was sent to Anil Ambani. “RCL (Reliance Communications) is in clear violation of the licence agreement as well as USOF Agreement leading to disruption of continuity of service. Also, there is no provision for USP (ie, RCom) to unilaterally exit on his own from discharge of its performance obligations and go scot-free without performing.” The show-cause notice proposed the maximum fine of Rs 50 crore.

DoT sources insist that once the penalty is approved, DoT imposes it circle-wise. RCom had violated the law in 13 circles and thus the fine could have risen to Rs 650 crore. Kapil Sibal has, however, said that the notice about the imposition of Rs 50 crore was issued to RCom to pressure the company to restore services. He maintained that the penalty was calculated on the basis of the duration of disruption of services (7-45 days) as provided in the agreement between the USO Fund and RCom.

[caption id=“attachment_44067” align=“alignleft” width=“380” caption=“Kapil Sibal has said that the notice about the imposition of Rs 50 crore was issued to RCom to pressure the company to restore services. Punit Paranjpe/Reuters”]  [/caption]

This was how he overruled the ‘strong’ recommendations of his Director (Telecom), Advisor (Finance), Member (Finance) and Secretary (Telecom), and slashed the fine, saying “invocation of Clause 10.2 (ii) of original UASL Agreement (for 20 years) actually made between Licensor DoT and M/s RCL (RCom) for broader purpose of licensing, for present limited purpose of violation of certain USOF contract (for five years), doesn’t seem to be commensurate with act of M/s RCL.’'

In his note, Sibal referred to a letter from RCom, dated 16 February, 2011: “They (RCom) have already switched on the sites in the earliest possible timeframe after mobilising their resources. They (RCom) have further submitted that even though there was substantial delay of up to two years in commissioning by IPs, they had installed the BTSs on the USOF sites in good faith and incurred heavy losses towards maintenance of unviable sites.''

This 16 February letter is not part of any previous communication with the Department of Telecom. And the letter suggested that everything was fine now, with RCom switching on the sites. Sibal apparently didn’t know that the rural telephony project was going down the drain, and RCom was a major contributor to its failure.

Sibal seems to have believed RCom’s letter more than his own officials, who, while proposing action against RCom, had stated: “The act of voluntary and unilateral switch off/closure of BTS sites by M/s RCL (RCom) is a clear violation of license agreement as well as USOF Agreement, leading to disruption of continuity of service. Also, there is no provision for the USP to unilaterally exit on his own from discharge of its performance obligations and go scot-free without performing.”