The Hindu Business Line : Right call, at last

AT LONG LAST has come the Cabinet nod raising the foreign direct investment (FDI) ceiling in key telecom services from 49 per cent to 74 per cent. Prima facie, this is a positive development, as it widens the FDI window and brings greater certainty to policy issues surrounding investments of this nature. Certain riders have been attached, but these are mainly to allay the security concerns of the intelligence agencies and appease the Left parties, which had opposed the proposal all along.

Both in the short and long term, the biggest beneficiaries of the latest move will be the integrated/mobile operators such as Bharti Tele-Ventures, Hutchison Essar and Idea Cellular/Tata Teleservices. In the short run, these operators will be able to simplify their complicated shareholding structure and infuse greater investor interest in their stocks. It is also likely that BPL and Spice Telecom, which operate only in a few circles, will become a part of the consolidation exercise. Over the longer term, these three major groups (along with Reliance Infocomm, in which foreign equity is quite low) will be in a position to attract FDI/foreign investment flows for funding their expansion plans and acquire the flexibility to create new infrastructure.

But it will also be naive to assume that merely enlarging the FDI window will bring in dramatic changes on the investment front. While the Working Group on the Telecom Sector has put the investment requirement at Rs 1,60,000 crore in the Tenth Plan, new foreign investors are not likely to rush in, as several regulatory bottlenecks and long-pending litigation remain to be sorted out. For instance, spectrum allocation issues in the mobile sector that threaten to escalate into a huge controversy, the Access Deficit Charge regime which makes entry into fixed line and long-distance services unattractive, or the Unified Licensing Policy that only goes to raise the entry barriers for new operators. Probably these bottlenecks explain the exit of some of the foreign operators in 2003 and 2004, even when the mobile telephony market was exploding. It is a telling indictment of the regulatory policy that while 32 global companies bid for mobile licences and 16 for fixed line licences through joint ventures in India in 1994-95, only three remain in the country today. Unless the regulatory issues are addressed, no global telecom company of significance will be make any large commitment to the Indian telecom sector.

Similarly, the latest hike in FDI policy is unlikely to change the urban slant of the operators and shift their focus towards rural telephony; rural teledensity is pathetically low, at less than two for every 100 people. Both technology and management expertise are readily available to take telephony deeper into rural India. But that has not materialised because no private operator finds it viable to install the infrastructure and operate the service. The latest Unified Licensing Policy recommendations on creation of a `niche operator' catering to fixed-line rural telephony does not have enough innovative options to make it attractive. In this backdrop, a higher FDI cap will not automatically bring telecom services to the rural and under-served areas unless there is a clear-cut policy thrust and creative regulation.

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