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Business opportunities in India

The telecom market, which is one of the world's largest and fastest growing, has an investment potential of US$ 20-25 billion over the next five years. The telecom market turnover is expected to increase from US$ 10 billion in 2004 to US$ 13 billion by 2007.

 

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Foreign Direct Investment ceiling has been increased from 49 per cent to 74 per cent in certain telecom services [such as Basic, Cellular, Unified Access Services, National/International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added services], subject to the following conditions:-

A. The total composite foreign holding including but not limited to investments by Foreign Institutional Investors (FIIs), Non-resident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs), convertible preference shares, proportionate foreign investment in Indian promoters/investment companies including their holding companies, etc., herein after referred as FDI, will not exceed 74 per cent. Thus, 74 per cent foreign investment can be made directly or indirectly in the operating company or through a holding company. Hence, the remaining 26 per cent will be owned by resident Indian citizens or an Indian Company (i.e. foreign direct investment does not exceed 49 percent and the management is with the Indian owners). It is clarified that proportionate foreign component of such an Indian Company will also be counted towards the ceiling of 74%. However, foreign component in the total holding of Indian public sector banks and Indian public sector financial institutions will be treated as ‘Indian’ holding. The licensee will be required to disclose the status of such foreign holding and certify that the foreign investment is within the ceiling of 74% on a half yearly basis.

B. The majority Directors on the Board including Chairman, Managing Director and Chief Executive Officer (CEO) shall be resident Indian citizens, enforced through licence agreement. The appointment to these positions from among resident Indian citizens shall be made in consultation with serious Indian investors.

C. The Share Holder Agreements (SHA) shall specifically incorporate the condition that majority directors on the Board including Chairman, Managing Director and CEO shall be resident Indian citizens and shall also envisage the conditions of adherence to Licence Agreement.

D. FDI upto 49 per cent will continue to be on automatic route. Foreign Investment Promotion Board (FIPB) approval shall be required for FDI in the licensee company/Indian promoters/investment companies including their holding companies if it has a bearing on the overall ceiling of 74 per cent. While approving the investment proposals, FIPB shall take note that investment is not coming from unfriendly countries.

E. The investment approval by FIPB shall envisage the conditionality that Company would adhere to licence Agreement.

F. FDI shall be subject to laws of India and not the laws of the foreign country/countries.

Targets for the end of the Eleventh Five Year Plan:

– 600 million mobile subscribers

– Rural tele-density of 25 per cent by means of 200 million rural connections

– Broadband for all secondary and higher secondary schools; all public health care centres and gram panchayats.

– 40 Million Internet and 20 million broadband subscribers by 2010.

BSNL Wireline Broadband Deal

According to the Economic Survey, 8,61,459 wireline* broadband connections with speed of at least 512 kbps always on, shall be provided by BSNL with subsidy support from the USO Fund. An agreement was signed in January 2009 with BSNL to provide these connections to rural and remote areas by leveraging the existing 27,789 rural exchanges and copper wireline network and by facilitating the service providers in creating broadband infrastructure.

The rural broadband connectivity will cover Government, institutional users, gram panchayats, higher secondary schools, public health centres and individual users. Subsidy would also be provided for setting up one kiosk from each rural exchange for providing public access to broadband services.

* Note: At one point in the Economic Survey, a reference is made to 8, 61, 459 wire-less services, while at another, a reference is made to 8, 61, 459 wire-line services. We’ll try and find a copy of the contract and update.

Growth In Telecom

According to the Economic Survey 2008-09, the Indian telecom network had 414 million connections in February 2009, is the third largest in the world, and is the the second largest wireless network in the world.

The total number of telephones increased from 76.53 million by end-March 2004 to 413.85 million by end-February 2009. About 113.36 million telephones, at the rate of more than 14 million subscribers every month, were added during the 11 months of 2008-2009. Total tele-density increased from 12.7 per cent in March 2006 to 35.65 per cent in February 2009. While rural tele-density reached 13.81 per cent in January 2009, the urban teledensity shot up to 83.66 per cent.

Foreign Direct Investment (FDI) increases In Telecom and Information & Broadcasting

Foreign Direct Investment in Information and Broadcasting surprisingly grew by as much as 170% – from Rs. 1290.3 crores in 2007-08, to Rs. 3492.4 crores in 2008-09. Remember that investment in news businesses is limited to around 26% because of which foreign investment in the sector has been limited.

India allows a maximum of 74 percent foreign direct investment in Telecom operators, though, according to the survey, in case of some telecom services, 100 percent investment is allowed. The total FDI inflows since January 2000 to December 2008 is Rs. 27,482.96 crore and the inflow during 2008 was Rs. 11,595.48 crore.

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