India's FDI cap elimination to spur foreign interest in spectrum auctions

Foreign companies are expected to take a more active interest in India's upcoming spectrum auctions, following the government's decision this month to eliminate the cap on foreign direct investment in telcos.

According to a research report by Bank of America Merrill Lynch, cited by The Hindu over the weekend, the recent policy decision makes it easier for Indian telcos to access foreign capital.

Bank of America Merrill Lynch also believes the government will address other issues, including the prohibitive reserve prices for spectrum, and the caps on spectrum ownership. The Indian government's most recent spectrum auctions only attracted a single bidder--Norwegian-backed telco Telenor--forcing it to slash revenue projections.

"The policy initiative offers fresh hope of capital availability for an industry whose indebtedness is steep and equity-options were hitherto constrained by ownership complications," the firm said, noting this came on the back of two failed auctions in the last 12 months.

On July 11, telecom regulator TRAI said it would start the consultation process for the third round of auctions shortly.
India's spectrum auctions have been hit by numerous obstacles such as delays and poor take up. This includes the reallocation of the spectrum it had revoked all 122 2G license agreements last February over alleged corruption in the sales process.