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Thomas K. Thomas
Ambarish Mukherjee

The proposal to restrict FDI is in line with the Government's policy to level the field for all telecom services providers.

New Delhi , March 10

THE Department of Telecommunications (DoT) is considering a proposal to restrict foreign direct investment (FDI) for Internet service providers (ISPs) offering leased line based virtual private network (VPN) service to 74 per cent.

Currently, all ISPs are allowed to bring in 100 per cent FDI.

The DoT proposal will hit Sify, which had approached the Foreign Investment Promotion Board (FIPB) to increase the FDI in the company to 100 per cent.

Sify had sought approval to issue sponsored American Depository Receipts (ADRs) of up to 1.57-crore equity shares, which could have taken the foreign holding from 58.1 per cent at present to 100 per cent. The Sify application has been put on hold by FIPB until the DoT takes a final view on the FDI policy.

Senior DoT officials, however, said that the proposal to restrict FDI to 74 per cent is in line with the Government's policy of providing level playing field to all telecom services providers.

"The entry fee and licence fee was imposed on ISPs to bring parity with long distance operators who are also offering VPN services. Similarly, FDI in long distance operators has recently been allowed up to 74 per cent only. So there has to be a balance. We are also looking at the security angle before finalising our views."

Meanwhile, Sify has sent a representation to FIPB saying that its application for issuing fresh ADRs was submitted under the current policy regime which allows 100 per cent FDI for ISPs without satellite gateways. As per the current policy, only those ISPs with satellite gateway are restricted to 74 per cent FDI. Sify had surrendered its gateways in February 2004.

Industry representatives said that the DoT move could be retrograde for ISPs offering virtual private network even as they are reeling under the impact of the Government's decision to impose entry and licence fee. These ISPs are now banking on their appeal filed in the Telecom Dispute Settlement Appellate Tribunal against the Government decision on imposing entry fee. Only five ISPs have, so far, paid the money. "At a time when the Government is looking at increasing the FDI cap for a number of sectors, it is really shocking there is a proposal to bring down the cap that too for a specific segment of operators," said an industry source.

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