the overall risk profile of RPS projects. Crisil assesses the following key elements of RPS projects in its overall credit risk classification and calibration exercise.

A. Business Risk:

1) Regulatory risk -- The business risk of RPS projects in the country, is strongly influenced by the regulatory framework governing the sector. The regulatory risks related to paging and other telecom services have been significantly mitigated over the past three years, subsequent to the constitution of the Trai. However, there still remain grey areas, thelicence fees for later years has not yet been stipulated by DoT. Crisil also assesses the specific regulatory requirements and approvals incorporated in the licence, which are precondition to commercial launch of RPS operations. In addition to the approvals from DoT, clearances are required from Wireless Planning Committee, the standing advisory committee for frequency allocation, telecom engineering committee, FIPB.

2) Analysis of market/service area -- Crisil analyses the market/service area for the RPS operator as one of the key determinants of business risk. The market potential for the respective circle of operation strongly influences the gestation period required for operational break-even of the project and the manner in which the RPS operator would design and implement the radio paging operator. Crisil analyses the economic profile of the market in detail and considers fixed line penetration and the geographical spread of basic telephony services, literacy levels, level of commercial activity andservices sector and outlook for the future as key indicators of the demand potential for paging services in the area. Crisil assesses the competitive scenario within the telecom circle as a critical determinant of the RPS operator's business risk. In each telecom circle, there is an option of entry of up to four or five operators, in addition to the FMRDS based paging operators licensed by AIR. Though at present most circles have only one or two operators, new operators would enter soon. This is in view of the low entry barriers in terms of financial or technical requirements, licence fees, capital expenditure. Therefore, the competitive scenario in most circles is as yet evolving. The competitive pressure would require the operator to continue to extend subsidy on pagers thus straining the cash flows. Concurrently, customer care and service quality would be the key differentiating parameters impacting the operator's market position.

3) Technology risk -- In Crisil's perspective, technology related issuesand the technical and managerial capabilities developed by the individual operators are of importance for the RPS operations. While the technology specified by DoT and FMRDS specified by AIR are fairly standard, the selection of technology would have a bearing on the network capacity, service quality and operational break-even for the operators. Another technological dimension is the introduction of multilingual pagers as a tool for broadening the subscriber base.

4) Operations & management issues -- The rating exercise undertaken by Crisil lays specific attention on the existing and proposed operations and management of the project and the strategic allocation of the operator's resources for the initial roll-out and the stabilisation phase. The marketing strategies of the operators regarding pricing, providing value added services, roaming are analysed in detail. As RPS provides little scope for product differentiation, the emphasis would be on subscriber addition through aggressive marketing and retentionthrough superior service quality. Crisil places specific attention on the present and proposed distribution strategy, the background, capabilities and role of channel of intermediaries and the trends in direct and indirect sales. Crisil's business risk analysis for RPS operations hinges on the outlook for such telecom services within the framework of regulatory environment and competitive scenario and the managerial capabilities of the respective RPS operators to capitalise on the emerging opportunities.

B. Financial Risk:

1) Capital structure of the RPS project -- Crisil's financial risk analysis of the project emanates from the present and proposed capital structure of the project. It considers the level of equity and debt financing completed and the proportion in which additional resource infusion would be made in the future. Crisil assesses the domestic and foreign equity holding pattern for the project and the plans for equity infusion in the future. Other parameters like exposure to domesticand foreign currency debt, interest rates and tenures and other lending conditions are also analysed.

2) Existing financial position -- A delay in the realisation of operating cash flows and its impact on the capital structure and the existing financial position of the RPS operator is analysed in detail. The covenanted capital structure in the project finance facilities and the ability of the RPS operating company to absorb higher levels of debt, if required, is assessed as a part of the existing financial position. The overall gearing of the company is assessed to understand the sources of additional capital infusion for the RPS project, if required. Crisil understands and factors in the operating losses of the RPS operator for the initial years of operations. Crisil believes that the critical parameter is not losses per se, but the manner in which the promoters intend to fund the initial losses and contingencies that may arise, in the event that the gestation period for achieving operational break-evenis longer than that assumed initially.

3) Cash flow adequacy -- The financial model prepared by the RPS operator, including assumptions on operating revenue and operating expenditure is analysed in detail. Crisil analyses details of the projected cash flow adequacy to assess the overall financial resilience of the operator and debt servicing abilities. Crisil's framework for assessing the credit quality of RPS projects considers only cash inflows and outflows, irrespective of the related accounting treatment.

One of the key features is an assessment of the additional equity infusion that may be required to maintain the project gearing at acceptable levels and service all the expenditure including the projected level of additional equity infusion, financial capabilities of the promoters, their existing resource commitments in other businesses and their ability to dilute equity holdings in the RPS venture.

4) Financial resources and financial flexibility -- Crisil places significant attention on thefinancial strength of the promoters and their ability to support continued subsidy on pagers and infuse funds into the operations in case of need.

Crisil believes that the manner in which the promoters intend to fund the initial losses, in the event that the project gestation period is longer than anticipated, would be of critical consideration.

5) Accounting quality -- Crisil assesses the existing accounting quality of the RPS operator and its long-term outlook towards conservative accounting practices, specifically towards income and expense recognition, capitalisation of expenses, write-offs or bad debts and disclosure and provisioning towards contingent liabilities