Security breather likely for telcos with 49% FDI

New Delhi, March 22 | Updated: Mar 23 2006, 05:39am hrs
Security norms imposed on telecom companies in November 2005 as part of the policy package permitting them to hike their composite foreign holding limit to 74% are likely to be waived for companies with foreign holding up to 49%.

The finance ministry, a key player in FDI policy-making, has endorsed this view. If the finance ministry has its way, Tata Teleservices, VSNL and Reliance Communications Ventures Ltd (RCoVL) of the Anil Ambani-led R-ADAG would be the gainers, along with public sector giants BSNL and MTNL. There is no FDI element in any of these companies at present.

While the Singapore governments investment vehicle, Temasek Holdings, is set to acquire close to 10% stake in Tata Teleservices, RCoVL has a small exposure to foreign institutional investors.

In notes sent to the home ministry and the department of telecommunications, the finance ministry has termed the decision to make Press Note 5 (PN- 5) conditions applicable to existing companies which had FDI cap of 49% regressive.

According to official sources, North Block has urged the home ministry, which took a conservative view on this issue, to retract. The finance ministry has also apprised the prime ministers office (PMO) of its opinion, the sources added.

Relief for 5 From PRESS NOTE 5

Tata Teleservices
Reliance Communications Ventures
Videsh Sanchar Nigam Ltd (Tata-controlled)
Bharat Sanchar Nigam Ltd
Mahangar Telephone Nigam Ltd

As per the PN-5, majority of the directors on the board of a telecom licensee, including the chairman, managing director and chief executive officer, should be resident Indian citizens.

Further, it is mandatory that the appointment to these positions is madein consultation with the serious Indian investor, that is, one who holds at least 10% equity in the licensing company.

Besides, the DoT is empowered to notify such key positions to be held by Indian residents from time to time. At present, both the CEO (Darryl Green) and the CTO (Greg Young) of Tata Teleservices are foreign nationals.

Investment Commission chairman Ratan Tata had pitched for waiver of PN-5 for companies that have kept foreign holding at or below 49%. The DoTs deadline for such companies to comply with the PN-5 was recently extended to July 3, 2006.

Under PN-5, telcos are also barred from giving remote access to their network equipment to any agency outside India, except in the case of catastrophic software failure.

A waiver implies that telecom equipment majors like Ericsson and Nokia would be allowed to control and maintain the networks they had supplied to Indian telecom service providers, if their foreign holding does not exceed 49%.

Traceable identity of subscribers is another condition that the PN-5 compliance mandates.