The Hindu Business Line : More calls still unattended

THE AMENDED FOREIGN direct investment (FDI) regulation is expected to bring greater clarity to the policy on the foreign ownership structure in the telecom industry. The decision to exclude foreign sector holdings in public sector banks and financial institutions that may have invested in telecom companies from the computation of the FDI ceiling of 74 per cent settles one more technicality relating to foreign investment regulation. The Union Cabinet setting a time-frame of four months for existing telecom licence holders to restructure their foreign holdings in line with the FDI ceiling brings certainty to the policy structure. And to further allay the security concerns of the intelligence agencies, the regulation insisting that telecom infrastructure be created only within the country is a progressive step.

The changes, though welcome in themselves, may not have any dramatic implications for attracting overseas telecom players to pick up strategic stakes in existing ventures in the short term. The consolidation process within the telecom industry is at a fairly advanced stage of evolution. Three dominant players — Bharti, Reliance Infocomm and Tata Teleservices — have already established a significant presence right along the telecom value chain with or without a strategic investor. There is at best some scope for financial investors to come on board to fund capacity expansions. The recent sale of BPL Mobile to Hutchison Essar leaves only a couple of non-integrated players such as Spice Telecom and Aircel which could be the target of FDI. As for Idea Cellular, since Birlas and Tatas have only recently decided to raise their equity stake by buying out Cingular Wireless, the possibility of a strategic foreign investor stepping in seems remote.

Considering the exodus of foreign operators from the Indian telecom sector over the past decade, their future behaviour may be guided by the adage "once bitten twice shy". But the lessons from their abrupt departure are still relevant for both the Government and the telecom regulator. They need to do a rethink on regulatory bottlenecks and pending litigation that are slowing the growth in mobile telephony. For instance, spectrum allocation issues have been hanging fire for well over a year, even as the congestion in mobile networks is getting out of control. The Access Deficit Charge and the unified licensing policy also remain unresolved. The lack of focus on rural telephony and the congestion in the urban mobile networks are widening the digital divide within the country. Despite the spectacular growth potential, if these bottlenecks persist, global telecom companies will only be slow in making any large-scale strategic commitments to the Indian telecom sector. All this, however, does not rule out the flow of private equity considering the attractive valuation that this sector enjoys in the market. The extraordinary growth seen in the telecom industry is only matched by the scale of the challenge ahead: the sector needs huge investments to progress towards the ambitious telephony target of 250 million by 2007.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Indo-Pak ties: A sliver of hope

More calls still unattended

When in Rome, do as the Romans do

Measuring performance and capability

Will RBI Governor stay the course?

Price of corporate responsibility

Futile ruckus

Biofuel policy

Victim of petty politics