Tuesday, 2 July 2013

Telecom commission approves 100% FDI in telecom service

Telecom Commission, an inter-ministerial body, on Tuesday approved to hike foreign direct investment limit for telecom sector to 100 percent from 74 percent currently. Sources informed CNBC-TV18 that following the news, the Department of Telecommunication (DoT) is likely to soon move a cabinet note for 100 percent FDI in telecom services.

At present, FDI limit in the sector is 74 percent and 49 percent can be invested through automatic route. But to take it upto 74 percent, Foreign Investment Permission Board (FIPB) nod is required. In case 100 percent FDI is approved, 49 percent investment would still be allowed through automatic route.

The idea behind increasing FDI limit in telecom sector is to help industry get fresh funds to lower financial burden. Reacting to the news of increase in FDI limit KPMG said that 100 percent FDI will help telecom companies to bring down debts. However the research firm does not see improvement in valuation of telecom companies on this regard.

Ernst & Young believes that the move will open door for new companies to enter the Indian market. Telecom major Reliance Communication said that the company supported government's move which will enhance value for all stakeholders.

Romal Shetty from KPMG believes that hiking FDI to 100% in telecom will bring investment but not necessarily cure all problems of the industry.

Telenor too welcomed government’s move and said that increase in FDI limits will help operators to attract more investment. Sistema Shyam which has been struggling to grow its foothold in the country after its licenses got cancelled said that this was a much needed policy decision and hailed it as pro industry and pro-consumer move. The largest telecom operator of the country Bharti Airteltoo welcomed government's move.

MOH and security agencies to oppose 100% FDI

It must be noted that Ministry of Home Affairs and many security agencies had opposed the move to allow 100 percent FDI in telecom. Sources informed that MOH is likely to propose new security conditions for allowing 100 percent FDI. It may also seek enforcement of remote access bar, sources said.   

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