Hike In FDI Cap To Bring In Fresh Funds, Tech In Telecom

New Delhi: | Updated: Feb 28 2003, 05:30am hrs
Indian private telecom companies struggling with cut-throat competition and squeezed margins may heave a sigh of relief at the group of ministers (GoM) recommendation to raise the foreign direct investment ceiling for the telecom sector to 74 per cent from the current 49 per cent. The GoM on Thursday finalised its recommendation and will now forward it to the Cabinet.

Industry experts say the proposed hike in FDI will bring fresh investments to the sector leading to better quality of services and faster expansion of networks.

Ernst & Young director and telecom expert Prashant Singhal said, This will have a positive impact on the Indian market. The move may attract major international telecom companies like Bell Canada, Telecom Italia and France Telecom to return to India.

The telecom sector needs huge investments with long gestation period. The increased presence of foreign funds and international players will also help in deploying latest technologies like 3G services in India, said Mr Singhal. He, however, said that the move may delay the consolidation process in the industry as players will have better options and will expect higher valuations.

Said Cellular Operators Association of India director general TV Ramachandran, This would meet the industrys requirement of huge funds to meet the tele-density objectives. We would now see higher investments and more growth in the telecom sector. Consulting firm KPMG director (telecom) Rothin Bhattacharya said, Telecom sector, being a natural monopoly, requires peak funding in the early phase of the business cycle. The absence of equity finance is the key reason for the early demise of many telcos as they have not been able to service their debts.

The increased limit would facilitate telecom companies to have higher debt equity ratio making their business cases more bankable, he added. However, it would not necessarily lead to increased consolidation as consolidation takes place in the absence of equity financing.