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Canaan Partners Writes Off Cellcast Investment; Cellcast PLC Exits

(by Apurva Chaudhary and Nikhil Pahwa)

The vagaries of regulation: Canaan Partners wrote off its investment in Cellcast India late last year, MediaNama had learned from reliable sources. Alok Mittal, General Partner at the VC firm declined to confirm or deny this development to MediaNama. In 2007, Canaan Partners had invested $5.25 million in Cellcast Asia. In May 2013, UK based Cellcast PLC announced that it offloaded its entire investment in Cellcast India, in return for a partial settlement against the sum of £585,000 overdue under its IP licensing agreement. It had announced plans to do this last year.

The Cellcast PLC sell-off and Canaan Partners write-off was following a regulation that significantly crippled Cellcast’s business last year. A notification from the Indian telecom regulator TRAI had placed an upper limit on premium SMS businesses at four times of the corresponding local call/SMS charges in the Tariff plan opted by the subscriber. Which meant that if a cellular phone customer had opted for a plan wherein the cost of a call is Rs 0.5, she could only be charged Rs 2 per call for a premium call. Cellcast bought TV air-time and ran shows like Bid2Win, astrology, Tambola, monetizing those through premium messages, which used to be around Rs 15 per minute. A reduction to Rs 2-5 per minute would have significantly hampered their business.

The TRAI had reversed its ruling in October last year, but it appears that enough damage had been done. When contacted by MediaNama earlier this month, Pankaj Thakkar, founder of Cellcast India said that the business is doing fine, and, in response to our question whether they’re shutting down, he said they aren’t. Thakkar did not answer the question on the companys employee strength. Sources had told MediaNama that the company is now down to 15 employees, from around 300 at its peak. Thakkar was unavailable for comment today: calls and messages were not returned.

Frankly, given that the TRAI policy has been revoked, there’s no reason why Cellcast can’t get back to business, but it will require funds to be able to this, given that it’s business has once been disrupted by regulation. That’s the unfortunate thing about operating in a heavily regulated environment.

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Cellcast PLC Exits

Cellcast PLC group had issued a statement on its decision, and that they no longer have any interest in operating CAH or Cellcast India:

“Cellcast Asia Holdings (“CAH”)

In 2012 Cellcast India’s financial position deteriorated as the effects of new Indian regulations reducing premium mobile tariffs for key applications took a toll on Cellcast India’s margins.

Consequently Cellcast India delayed payments due to the Group under a software licensing agreement, entered into in October 2011. As at 31 December 2011, a provision of £585,000 was therefore made against the remaining amount outstanding.

During 2012 a decision was reached by the Board of Cellcast to negotiate a complete exit of its investment in Cellcast India, in return for a partial settlement against the sum of £585,000 overdue under the software licencing agreement. In the year to 31 December 2012 this has been concluded to the reasonable satisfaction of all parties involved in Cellcast India and consequently the Company no longer has any interest in CAH or Cellcast India.”

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Cellcast PLC had previously offloaded its majority stake in Cellcast Asia Holdings (CAH) last year and had inked an agreement with CAH (Cellcast Asia Holdings) to buy back 3,221,555 shares in CAH for US$1.5 million in October 2011. Cellcast Asia Holdings had also reportedly raised$9.5 million in a fresh round of funding from Vertex, a wholly-owned subsidiary of Temasek Holdings.

Related:

– Cellcast’s Channel Plans; Average ARPU Rs 50; Will Seek Funding
– Cellcast Plans 24×7 Interactive TV Channel; Cellcast Asia FY10 Profit $2 Million
– Cellcast Gets IPL Mobile Content Rights For India, Covering SMS, Voice And USSD

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