The Indian government is coming closer to easing restrictions on foreign ownership of telecoms firms, a move which would help create more viable cellcos by encouraging mergers between struggling players, and increased inward investment.
The government is proposing to remove the 74% cap on foreign direct investment in telcos, allowing 100% ownership. However, for the industry to benefit in full, the administration needs to take many other key decisions, say campaigners ‘ other aspects of M&A laws remain cloudy, and the issue of effective spectrum allocation processes lurks after the failed resale of many of the 2G licences cancelled after a corruption scandal.
Analyst Sridhar Pai, CEO of Tonse Telecom, told ZDnet: “While this is certainly better than nothing, no foreign telco will suddenly jump into a market just because you have thrown open 100% FDI (foreign direct investment). The policy mess we have created so far is well known and unless clarity is brought into it, it would be difficult to expect any telco to come rushing onto our shores.’
Regulators and ministers are considering measures to strengthen the two lossmaking state-owned telcos, BSNL and MTNL, possibly including a bail-out, partial privatization or merger. They also want to ease the way to reduce the number of players in the over-competitive 2G market, where ultra-thin margins are preventing cellcos from investing in badly needed new capacity. One deal which would immediately be eased by new M&A rules would be Russian group Sistema’s potential purchase of the Tata Docomo joint venture to merge with its own MTS-branded joint venture.