The Telecom Commission has given the green signal for increasing the foreign direct investment (FDI) limit in the telecom sector to 100 percent from the present 74 percent.
Indian government is trying to increase the FDI limit at a time when the foreign investment in the telecom sector plummeted by 96 percent to $70.46 million in April to November 2012 period. The sector saw FDI of $1,987 million for the same period a year ago.
The cumulative FDI in the Indian telecommunications sector from April 2000 to November 2012 period stood at $12.62 billion.
The Telecom Commission’s decision will be submitted to the Union Cabinet for its approval.
The increase in FDI is expected to attract further investments in the telecom sector.
However, a part of the telecom industry is cagey about security issues since foreign promoters can have 100 percent ownership in Indian telecom service providers.
Several global telecom majors will be able to utilize the new regulations once it get final go ahead from the Cabinet.
Telecom giants such as SingTel (in Bharti Airtel), Maxis (Aircel), Axiata (Idea Cellular), Vodafone plc of the UK (Vodafone India), etc. have stakes in their Indian ventures and may look at increasing stakes if market conditions are going to improve. This means, their local partners will get a chance to dilute stake in their Indian companies.
AT&T, BT, Verizon and NTT Docomo are some of the other telecom giants working in India through their own operations or via joint ventures.
At present, AT&T, BT and Verizon do not have mobile operations in India.
Also, several global mobile operators — MTN, Qatar Telecom, T-Mobile, Telefonica, etc. could explore Indian opportunities.
Increase in FDI will enable mobile operators to leverage their fresh capital to raise more debts to fund their expansion plans.
As several financial institutions and banks are not willing to lend to mobile operators — due to 2G scam and regulatory issues — network roll outs have negatively impacted in the recent past.
Industry analysts are not sure whether there will be immediate demand from foreign players for increasing their stake in their Indian venture.
Indian telecom sector is currently going through a bad phase on the overall revenue front.
Telecom operator’s gross revenue declined 1.5 percent to Rs 27,455 crore in December 2012 from Rs 27,774 crore in September 2012. Out of 12 mobile service providers, 5 posted decline in their gross revenue in the third quarter of fiscal 2013 as compared with the previous quarter, according to TRAI data.
There is silver line as well. Despite negative sentiments in the Indian telecom space, Airtel could sell 5 percent stake to the Qatar Foundation Endowment for Rs 6,796 crore.
Also, there were media reports suggesting that AT&T could pick up stake in Reliance Jio Infocomm, the only pan India 4G operator and part of Reliance Industries (RIL).