India Telecom

February 3, 2005
FDI ceiling increased from 49 percent to 74 percent in telecom sector

NEW DELHI -- Cabinet recently approved a proposal to enhance composite foreign holding in telecom sector to 74 percent. With this decision, the current FDI ceiling in the telecom sector in certain services such as basic, cellular, unified access services, national/international long distance, VSat, public mobile radio trunked services (PMRTS), global mobile personal communications services (GMPCS) and other value-added services, has been increased from 49 percent to 74 percent.

The total composite foreign holding including but not limited to investments by FIIs, NRI/OCB, FCCB, ADRs, GDRs, convertible preference shares, proportionate foreign investment in Indian promoters/investment companies including their holding companies, etc., will not exceed 74 percent. Thus, 74 percent foreign investment can be made directly or indirectly in operating company or through a holding company. The remaining 26 percent will be owned by resident Indian citizens or an Indian company. It is clarified that proportionate foreign component of such an Indian company will be counted toward the ceiling of 74 percent. The licensee will be required to disclose the status of such foreign holding and certify that the foreign investment is within the ceiling of 74 percent on a half-yearly basis.

While enhancing the FDI ceiling, certain conditions have been put in place to safeguard the national interest. The salient conditions are:

a) The majority directors on the board including chairman, managing director and CEO shall be resident Indian citizens. The share holder agreements (SHA) shall incorporate this condition and envisage the conditions of adherence to licence agreement;

b) To ensure that atleast one serious resident Indian promoter subscribes reasonable amount of the resident Indian shareholding, such resident Indian promoter shall hold atleast 10 percent equity of the licensee company;

c) The chief technical officer/chief finance officer should be resident Indian citizens. The licensor/DoT shall also be empowered to notify any key positions to be held by resident Indian citizens;

d) No traffic from subscribers within India to subscribers within India shall be hauled to any place outside India;

e) The company shall not transfer the following to any person/ place
outside India:-

(i) Any accounting information relating to subscriber (except for
roaming/billing);
(ii) User information (except pertaining to foreign subscribers using
Indian Operator's network while roaming); and
(iii) Details of infrastructure/network diagram except to telecom equipment suppliers/manufacturers who undertake the installation, commissioning of the infrastructure of licensee company on signing of non-disclosure agreement.

f) The company must provide traceable identity of its subscribers; and

g) No remote access shall be provided to any equipment manufacturer or any
other agency outside the country for any maintenance/repairs by the licensee.

These conditions shall be made applicable to companies operating telecom service with existing FDI ceiling of 49 percent. With above dispensation, the present provisions in FDI policy for investment company will no longer be applicable for telecom sector as indirect foreign investment in licensee company will be counted toward sectoral cap of 74 percent.