The telecom industry is fine with a FDI cap of 49% if raising it to 74% involves complicated security provisions.
NEW DELHI: Thanks to security-related controversy over compliance with foreign investment norms in the telecom sector, the industry is seeking a rollback to the old regime.
That is, the telecom industry is fine with a foreign direct investment (FDI) cap of 49% if raising it to 74% involves complicated security provisions.
So, 18 months after the cap in the telecom sector was raised to 74%, it may be back to square one. An industry source said: “The government should scrap Press Note 5 (issued on November 3, 2005), rather than giving us another extension to comply with its stiff conditions”. Most telecom companies agreed with this view.
Cellular Operators Association of India director general TV Ramachandran was unavailable for comment. Even SC Khanna of the Association of Unified Service Providers of India (AUSPI) declined to comment on the issue.
Interestingly, Bharti Airtel has issued a statement saying that it is compliant with both the previous policy (when FDI upto 49% was allowed in telecom) and the policy as envisaged under Press Note 5. But Bharti added that “given that there are serious differences on the implementation of the conditions provided under Press Note 5, Bharti Airtel would like to appeal to the government to have a quick and equitable resolution to the issue keeping in consideration the necessity for having a level playing field amongst all the industry players”.
The company stressed, “in the event such attempts fail, a suspension or revocation of Press Note 5 may be the best option”. The current FDI in Bharti Airtel stands at 47.92%, and its composite foreign holding is at 73.70%.
The deadline for compliance with Press Note 5 in the telecom sector is October 2.
The Union Cabinet is expected to take up the matter this Thursday, and an extension is likely for adherence with the new foreign investment norms (as per Press Note 5). Prior to this, several deadline extensions have already been given to the industry in the absence of a consensus within the government on the implementation of the rules.
For instance, the department of telecommunications (DoT) favours uniform foreign investment guidelines for companies with up to 49% FDI and those with up to 74%. And, the Prime Minister’s Office (PMO) is learnt to be backing the theory of two different sets of guidelines-one for up to 49% FDI companies, and another for up to 74%.
Among the tricky norms in Press Note 5 is that the majority of directors on the board, including the chairman, managing director and CEO, shall be resident Indian citizens. Tata Teleservices has a foreigner as CEO - Darryl Green.
In this regard, Tata group chairman Ratan Tata had made a representation to the government saying that companies with up to 49% FDI should not be made to comply with Press Note 5 norms. As per the guidelines, the chief technology officer and the chief financial officer shall also be resident Indians.
Besides, the foreign CEO/CFO/CTO guideline, the industry is upset with the stiff security norms. For example, Foreign Investment Promotion Board (FIPB) approval will be a must for FDI in the licensee company if it has a bearing on the overall ceiling of 74%. The FIPB will also take note of the fact that investment is not coming from unfriendly countries.
Also, the guidelines state that the company shall not transfer any accounting information relating to subscribers, user information and details of infrastructure/network to any place or person outside India. In addition, the company, when entering into roaming agreements with service providers outside India, must provide, on demand, the list of such users.
And, no traffic from subscribers within India to subscribers within India shall be hauled to any place outside India.
Yet another clause in Press Note 5 is that no remote access shall be provided to any equipment manufacturer or any other agency outside the country for any maintenance/repairs by the licensee.
However, remote access will be allowed during `catastrophic’ software failure. DoT is yet to define “catastrophic” software failure. The rules also state that DoT may restrict the licensee company from operating in any sensitive area from the national security angle.
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