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First the good news. Indian cellular operators, in the next few weeks, may announce free incoming calls from one another's networks, making it even cheaper to use mobile phones. As for the industry, it is hopeful of a manifold increase in its subscriber base in the coming months.

The industry has grown by leaps and bounds in the last eight years. And for the first time ever, the number of subscribers grew more than the fixed line users in April-June 2002: 9.6 lakh new cellphone users as against only 3 lakh new fixed phone subscribers. The total cellular subscriber base in India is currently about 80 lakh and is expected to cross the one crore mark in the next three months. By 2008, the industry expects more than 12 crore Indians to be toting mobile handsets.

Now the bad news. Most cellular operators, despite such impressive figures, are awash in red ink. According to estimates of the Cellular Operators' Association of India (COAI), the sector's accumulated losses increased by a whopping Rs 800 crore between March 31, 2001, and March 31, 2002, raising the overall figure from Rs 6,929 crore last year to Rs 7,719 crore. In the current year, these losses could go beyond Rs 1,000 crore.

Says Hutchison Telecom chief Asim Ghosh: "The entire industry is profit-negative and cash flow-negative today. This industry has grown without any subsidy and needs a lot of private investment." Bharti Enterprises chairman Sunil Mittal is equally blunt: "On an accumulated basis, no cellular service company has a positive cash flow today."

Adds COAI director general T.V. Ramachandran: "Many cellular operators are earning operating profits but are unable to service financing charges and depreciation. They are gradually being pushed to a spot." Most of the companies declared massive losses for 2001-02—Idea Cellular, the joint venture between Birla, AT&T and the Tatas, has already announced a net loss of Rs 212 crore for the year, and according to reports, Bharti Cellular too has recorded losses of around Rs 140 crore.

These losses are attributed to the fall in tariffs over the last few years, coupled with unfavourable terms of operation dictated by the government and the regulator. Says Ramachandran: "The operators paid a huge entry-fee which amounted to around Rs 3,000 crore each in the metro circles. On top of that, the present revenue share arrangement puts a heavy burden on the operators."

According to the operators, they have to give up as much as 35-42 per cent of revenue on account of licence fee-revenue share along with spectrum charges, service tax and interconnection costs, making operations extremely unviable. Compare this with operators in China and Singapore who pay around 1 per cent of their revenues. Operators in Sri Lanka pay only 0.36 per cent of their revenues as licence fee. Even in neighbouring Bangladesh, it is an all-inclusive figure of only 4 per cent.

Spectrum availability is another issue. Indian companies operate on 8 MHz in Delhi and Mumbai and on 6.2 MHz in other circles. A survey of 114 operators in 31 countries has shown that globally the average spectrum allocation per operator is 17 MHz. In China, 45 MHz spectrum is shared between two operators. Says an operator: "The low spectrum availability is increasing our capital expenditure as we have to put in more infrastructure to service customers."

Right now, say COAI sources, cellular tariff in India is the lowest in the world and there is little scope for further reduction. Adds Mittal: "The scope for tariff reduction is now in paise rather than rupees, unless the government steps in to solve the regulatory issues."

The industry is also of the opinion that if the government-owned BSNL, which has announced plans of getting into the cellular business, starts playing with prices, the industry's losses could soar.Says Ghosh: "The government needs to rationalise policy and regulation. Tariffs have fallen due to competition. The rubberband of cellular operators' capacity to go on playing under the current terms may snap any day."

The future scenario? Says Ghosh: "We are already a lesser number than what we started with eight years ago. There will be another round of consolidation and fewer players would be left in the fray." Says Ramachandran: "Globally, there are about three cellular operators per circle. We will reach that figure by default as fewer players will be able to survive." Under all the hype, the situation is clearly very grim.