Monday, March 29, 2010

India - FDI in telecom not that rosy

[times of india] Foreign Direct Investment (FDI) appears to be bypassing the telecom sector, despite India being one of the most attractive and fastest growing telecom markets. An analysis of the ownership details revealed by nine bidders for the 3G auctions opening on April 9, reveals that the average FDI holding is just below 40% (39.7%).

This changes the common perception that FDI levels in the telecom sector are very high. It also reveals that despite the fact that FDI limits were raised from 49% to 74% five years ago, foreign investors have not utilized the higher investment ceiling.
In addition, foreign telcos have given the 3G auctions a miss. This has wiped out the possibility of a large chunk of fresh FDI inflow and also reduces the auction’s potential to generate telecom minister A Raja’s original revenue target of Rs 40,000 crore.

Among the nine bidders, Vodafone accounts for the highest FDI at 70.9%, which includes Vodafone’s investments and some of Essar’s own foreign investments. The second largest FDI is in Aircel with its foreign investor — Global Communication Services Holding (GCSH) owning 64.9%. Deccan Digital, which owns 34.9% is, in turn, also held 25% by GCSH. So in that sense, the exact foreign holding in Aircel is closer to 74% through direct and indirect routes.

The other two bidders with leading foreign investments are Etisalat and S Tel. Etisalat Mauritius holds 44.73% in Etisalat India with Delphi Investments holding 4.27%, totalling 49%. Bahrain-based BMIC Ltd owns 42.7% of the 49% FDI in S Tel. Bharti Airtel and Idea both have roughly 40% FDI. Pestel Ltd is Bharti’s largest foreign investor with a 15.5% holding, followed by foreign FIs, foreign companies and shareholders who own 17.9% FDI. Idea has FDI of 40.5% through TMI and P5 Asia Investments.

Tatas have an FDI of 34.1%, mostly through NTT Docomo, which is the single largest foreign investor at 26.5%. The only bidder that has 100% Indian investment but barely any 2G operations is Videocon. Reliance communications also has a very large chunk of its total investment held by Indian promoters.

While foreign investments coming in after the 3G bidding is over is a possibility, the lack of foreign investors’ interest in 3G bidding or even investing up to the full 74% FDI limit in 2G operations should be of concern to the government. In fact, Telenor, one of the major new foreign investors is staying away from 3G auctions altogther.

FIs had made it clear in 2008 that 3G bid conditions presented huge entry barriers to new entrants in general and foreign investors in particular. Despite this, a year after the first set of guidelines were issued, the 3G entry norms were not adequately altered, resulting in nine bidders joining the race for three pan-India 3G licences but without any new Indian or foreign investor in contention.

FDI in telecom not that rosy

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