Skycell promoters plan exit, while company invests Rs 60 crore

It seems that the promoters of Chennai-based cellular phone service provider, Skycell Communications Ltd., are willing to part ways. Three of the four promoters - DSS Enterprises Pvt Ltd (holding 10.5 per cent), US-based Bell South International Asia/Pacific Inc. and Luxembourg-based Millicom International Cellular S.A., (both holding 24.5 per cent each) - are looking out for attractive offers for their 59.5 per cent holding in the company.

It all started when Bharti Tele Ventures Ltd. acquired the entire 40.5 per cent holding of Crompton Greaves - one of the original promoters - for around Rs.120 crore in 1999.

Objecting to the sale of the equity, Bell South International took the issue to the court, contending that Crompton Greaves did not honour the joint venture agreement by not discussing about stake sale with its other partners.

Subsequently, Mr. P.H. Rao, managing director of Skycell Communications, filed a petition with Company Law Board (CLB), restraining the majority shareholders – DSS Enterprises, Bell South and Millicom International – from changing the composition of the company's board. But the CLB dismissed the petition terming it as "non-maintainable".

Addressing the media, Mr. Rao said, "Bharti Tele Ventures has three nominees as alternate directors on the company board. All the joint venture partners are in touch with several interested parties, including Bharti Tele Ventures, the major shareholder."

While the issue is still to be resolved, Skycell Communications is planning to invest Rs. 60 crore to beef up its infrastructure and signal reception quality. According to Mr. Rao, the investment will increase its number of base stations to 49, higher than its nearest competitor, RPG Cellular.

"The investment will also help the company to expand its value-added services like wireless access protocol (WAP) and mobile banking facility, etc.," said Mr.. Rao. According to him, this is the first time the company has made a major investment since it started operations in October 1995.

Lack of subscribers and mounting losses prevented the company from investing earlier. Now with proper infrastructure in place, Mr. Rao expressed confidence of increasing the subscriber base from the present 40,000.

Though the telecom revenues for the state-owned Bharat Sanchar Nigam Ltd. (BSNL) is as high as Rs 1,100 crore from Chennai, the telecom industry is surprised with the low cell phone penetration in the city, which currently stands at less than one lakh connections.

In the Tamil Nadu circle {which includes all areas of Tamil Nadu except the city of Chennai} the total cell phone-using population is nearing the figure of two-lakh. "One of the reasons for low penetration and high cost is that Chennai is not a city of distances. The commuting time is very low," Mr. Rao explained.

However, the trend is changing. With a reduction in costs - after the migration of cellular players from licence fee regime to a revenue sharing basis - Chennai is one of the fastest growing markets amongst the four metros in the country.

While RPG Cellular registered a growth rate of 6.13 per cent between May-November 2000, Skycell Communications grew by 4.38 per cent.

The growth has had a positive impact on Skycell Communications. Mopping up a monthly revenue of Rs. 7 crore, the company is making an operational profit of Rs 3 crore and a cash profit of Rs. 75 lakh, Mr. S. Venkatraman, the company's secretary and chief financial officer, said.

The average revenue per user is Rs 1,400 and the average usage time per annum/per subscriber is 250 minutes. "The accumulated loss of Rs 90 crore will be wiped out in two years," he said. Under the licence regime, the company has paid a licence fee of Rs 23 crore.

Sixty per cent of the revenue is generated from post-paid subscribers with the corporates accounting for 22 per cent. Though Mr. Rao declined to reveal the company's investment in building the brand, it is understood that Skycell Communications spends around Rs 3,300 to acquire a subscriber. Despite the default/bad debt rate being less than 2 per cent, the average subscriber outstanding for Skycell Communications stands at 35 days.

Speaking about the company's strategy to penetrate the market, Mr. Rao said Skycell Communications will soon open multiple customer interface junctions, Teleshops - in different parts of the city.

The company is also planning to double its retailer base selling pre-paid cards, presently at 1,200. "We will also introduce an exclusive customer service desk for the corporate and other key accounts," he added.