India’s reform of 100% FDI to woo GCC telcos

India’s surprise move on Wednesday, allowing 100 per cent foreign direct investment in the telecom sector without government approval, is expected to woo overseas investors and corporates in droves, including some telecommunication giants from the GCC looking for expanding footprints across lucrative emerging markets.

The move, part of the much-awaited relief package announced by the Federal Cabinet to help the financially-strapped telecom sector, will benefit companies such as Vodafone Idea, Bharti Airtel, and Reliance Jio.

The relief package includes a four-year moratorium for cash-strapped telcos on payment of statutory due. The strategic move to open the sector for 100 per cent foreign investment through automatic route will have far reaching positive implications on India’s fast growing telecommunication sector, investment experts believe,

Among the potential global investors seeking to enter the second most populous nation are some of the leading Gulf-based telecom operators, including UAE’s Etisalat and du, Saudi Telecom Company, Bahrain's Batelco, Omantel, Qatar’s Ooredoo and Kuwait’s ZAIN. Most of them have international operations across Africa, the Middle East and Asia.

The UAE telecom operators Etisalat and du, which have already raised the ownership limit of foreign nationals to 49 per cent from 20 per cent, are also among the first service providers in the region to announce the availability of a 5G network, supporting smartphones for commercial use.

“With the prospects of immediate forays by Gulf telecoms, which have taken a giant leap in 5-G network operation, India’s telecom sector stands to gain with a faster transition to the high-speed telecom ecosystem.

"In the telecom sector, nine structural reforms and five process reforms have been approved by the cabinet. These reforms will change the framework of the entire telecom sector. They will deepen and broaden the industry," Union Minister for Communications Ashwini Vaishnaw said at a Press conference.

The reforms proposed under the package include the granting of moratorium on unpaid dues, redefining AGR (Adjusted Gross Revenue), and changes in the norms for spectrum sharing.

As part of the package, all non-telecom revenue will be taken out of AGR. Spectrum sharing has been permitted and will be completely free.

"There was a regime of heavy interest, penalty & interest on penalty on payment of license fees, spectrum user charges & all kinds of charges. It has been rationalised today. Annual compounding (of interest) will be done instead of monthly compounding," said Vaishnaw as quoted by ANI.

"Those who avail of the moratorium, will have to pay interest on the moratorium amount at MCLR (marginal cost of funds based lending rate) + 2.0 per cent rate," said the minister.

The package "will pave way for large-scale investments in the telecom sector. Investment means employment – more the investment, more the employment," Vaishnaw said.

The relief package will provide a breather to Vodafone Idea, which is on the verge of bankruptcy. A moratorium on AGR-related dues will allow the telecom company to clear its dues over a longer period.

"Prime Minister Narendra Modi has a very clear vision for the telecom sector — that telecom services reach even marginalised sections in remote areas. So it is very important to have a robust telecom sector where the Balance Sheet of companies, their cash flow stay safe," Vaishnaw said.

— issacjohn@khaleejtimes.com