India Raises FDI Cap In Telecom Industry To 74%

NEW DELHI -(Dow Jones)- India's federal Cabinet late Thursday announced plans to raise the foreign investment cap in the country's telecommunications sector to 74% from 49% in one of the biggest reform moves of the coalition government.

"It's a welcome move. It'll help attract more FDI which is a prerequisite for the kind of growth we want in telecom," said Vikram Mehmi, chief executive of Idea Cellular Ltd., the country's fourth-largest GSM-based cellphone operator.

As per the revised rules, the 74% foreign investment can be made directly or indirectly in the operating company or through a holding company. The remaining 26% stake shall be owned by resident Indian citizens or an Indian company. The management of the operating company shall rest with resident Indians.

Thursday's decision is expected to assist in further driving growth in India's telecom industry, one of the world's fastest growing markets.

Local telecom companies have lobbied for increasing the FDI cap saying it will help them push into untapped rural areas that accounts for nearly 75% of India's population.

"It's a very positive step which will help telecom companies to attract large amounts of investment which they need to achieve increased telephone penetration in the country," said Vikash Saraf, chief executive officer of Essar Tele-Holdings, the Indian joint venture partner of Hong Kong's Hutchison Telecommunications International Ltd. (HTX), or HTIL.

HTIL is a unit of conglomerate Hutchison Whampoa Ltd. (0013.HK).

As per government data, foreign direct investment in India's telecom sector was INR874 million in 2004 as compared with INR3.01 billion in the previous year.

With just one in 10 people out of 1 billion plus population having a phone and over 2.5 million users added each month, India has been identified as one of the key potential markets in the world by global telecom firms.

The Indian government has forecast the country will have 250 million telephones by December 2007, up from 110 million now. To achieve this target, investments of $20 billion will be required.

Of the current telephone customer base, over 65 million are mobile phone users.

Companies such as Bharti Tele-Ventures Ltd. (532454.BY) has long been a favorite of foreign investors. Singapore Telecommunications Ltd. (T48.SG) owns 30.84% of the company, while Warburg Pincus LLC (WBP.XX) has a 5.74% stake. Total foreign institutional holding stands at nearly 25%.

Gurunath Mudlapur, managing director, Atherstone Institute of Research said the relaxations in foreign investment rules will help Indian telecom companies to access much-needed funds for expansion of their network.

"There is huge requirement of funds in telecom. The government has now set the ball rolling," said Mudlapur.

-By Santanu Choudhury & P. R. Venkat, Dow Jones Newswires; +91-11-23074020; santanu.choudhury@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 21st October 2005