elecom 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 Airtel too 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.
Below is the verbatim transcript of Romal Sheety’s interview on CNBC-TV18
Q: It is not a done deal yet; this is perhaps one more step towards eventually opening it up to a 100 percent. It is a decision taken by the telecom commission, it still needs to go to Cabinet and be cleared by Cabinet. However, as the Telecom Regulatory Authority of India (TRAI) Chairman there was pointing out lets temper expectations, the fact that even if it goes from 74 percent to 100 percent it is not dramatically going to change the landscape of the industry in the current context, would you agree with that?
A: I agree with him because the biggest problem in this sector is today in terms of the uncertainty especially the regulatory uncertainty, the future in terms of the spectrum roadmap, the frequency, when the auctions will be done. So, those are all critical decisions from an investment and from a long-term perspective.
This is a welcome initiative because all telecos are under huge debts, so whether it is an Indian company or a foreign company typically you would want to get in money, you would want to have larger ownership for example. However, this by itself is not going to cure the sector of all the ills.
Q: Who stands to benefit the most because guys like Telenor, Sistema have been seeking approval from the government or have been lobbying with the government to open the sector up to 100 percent clearly those would be the guys that would positively be impacted or would be waiting for this decision to be taken?
A: In the past there have been partners in India and not necessary all the partners where specifically brought in from a strategic skills perspective or an enabling perspective, and they have had bad experiences. So, some of them would like to now not necessarily have that partnership and therefore have 100 percent ownership or pretty much majority ownership. So, they will benefit but I don’t think so it is only for them, it is also for the Indian telecos who would want to divest more stake because then this allows them to divest more stake.
Therefore from an operator perspective it is typically a win-win situation for any of the operators.
Q: What is this actually going to mean for current promoters who are looking at cashing out?
A: Either cashing out or for example selling stake out will help. If you just look at the last few years because of what happened from a 2G licensing, 3G rollout networks, now for example you are spending more money, there is 4G coming in, so there is a lot of outflow which is happened but the returns on investment have not happened in the last three to four years. So, there is no real increase in Average revenue per unit (ARPU), there is no real increase in revenues happening. There is a lot of debt on the balance sheets and therefore even from a promoter perspective it does help to cash out. So, it is a good situation for them as well.
Q: This not a done deal yet, this is what the Mayaram Committee has suggested. Now, you have the Telecom Commission also batting for 100 percent do you believe it will go through?
A: I hope it goes through because at the end of the day its helpful for the sector but I am not the government and I don’t know what restrictions will come from any particular ministry, from security or other concerns. However, like I said as somebody who looks after the sector I wish that it goes through.
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 Airtel too 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.
Below is the verbatim transcript of Romal Sheety’s interview on CNBC-TV18
Q: It is not a done deal yet; this is perhaps one more step towards eventually opening it up to a 100 percent. It is a decision taken by the telecom commission, it still needs to go to Cabinet and be cleared by Cabinet. However, as the Telecom Regulatory Authority of India (TRAI) Chairman there was pointing out lets temper expectations, the fact that even if it goes from 74 percent to 100 percent it is not dramatically going to change the landscape of the industry in the current context, would you agree with that?
A: I agree with him because the biggest problem in this sector is today in terms of the uncertainty especially the regulatory uncertainty, the future in terms of the spectrum roadmap, the frequency, when the auctions will be done. So, those are all critical decisions from an investment and from a long-term perspective.
This is a welcome initiative because all telecos are under huge debts, so whether it is an Indian company or a foreign company typically you would want to get in money, you would want to have larger ownership for example. However, this by itself is not going to cure the sector of all the ills.
Q: Who stands to benefit the most because guys like Telenor, Sistema have been seeking approval from the government or have been lobbying with the government to open the sector up to 100 percent clearly those would be the guys that would positively be impacted or would be waiting for this decision to be taken?
A: In the past there have been partners in India and not necessary all the partners where specifically brought in from a strategic skills perspective or an enabling perspective, and they have had bad experiences. So, some of them would like to now not necessarily have that partnership and therefore have 100 percent ownership or pretty much majority ownership. So, they will benefit but I don’t think so it is only for them, it is also for the Indian telecos who would want to divest more stake because then this allows them to divest more stake.
Therefore from an operator perspective it is typically a win-win situation for any of the operators.
Q: What is this actually going to mean for current promoters who are looking at cashing out?
A: Either cashing out or for example selling stake out will help. If you just look at the last few years because of what happened from a 2G licensing, 3G rollout networks, now for example you are spending more money, there is 4G coming in, so there is a lot of outflow which is happened but the returns on investment have not happened in the last three to four years. So, there is no real increase in Average revenue per unit (ARPU), there is no real increase in revenues happening. There is a lot of debt on the balance sheets and therefore even from a promoter perspective it does help to cash out. So, it is a good situation for them as well.
Q: This not a done deal yet, this is what the Mayaram Committee has suggested. Now, you have the Telecom Commission also batting for 100 percent do you believe it will go through?
A: I hope it goes through because at the end of the day its helpful for the sector but I am not the government and I don’t know what restrictions will come from any particular ministry, from security or other concerns. However, like I said as somebody who looks after the sector I wish that it goes through.
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