Foreign investment in India telcos hamstrung by policy issues

The Indian government must resolve fundamental telco policy issues before the industry can extract the full value from the decision to eliminate the cap on foreign ownership.

In an interview with ZDNet, Sridhar T. Pai, CEO of analyst firm Tonse Telecom, welcomed the proposal to raise the foreign direct investment cap to 100 percent from 74 percent but said the government must clarify areas such as mergers and acquisitions and the spectrum auction process.

"While this is certainly better than nothing, no foreign telco will suddenly jump into a market just because you have thrown open 100 percent FDI. The policy mess we have created so far is well known and unless clarity is brought into it, would be difficult to expect any telco to come rushing onto our shores," Pai said.

He said the move indicates the government is attempting to raise confidence in the industry, which is mired in debt. In particular, state-run telcos Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone Nigam (MTNL) have been reporting losses for the past few years, prompting the telcoms minister to mull over a bailout.

"This is not surprising at a time when the elections are round the corner. This is not something that will immediately impact the consumers in anyway in the short term--but will pave the way for a stronger healthier industry--provided the other associated policy matters are cleared."

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.