India govt spurs telecom growth

Shailendra Bhatnagar

NEW DELHI: Concessions won by Indian cellular operators for their support of licensing laws should boost foreign investment and push the sector to the kind of growth seen in China, the world's biggest market, analysts said.

India has cut license fees, promised to let foreign investors own a majority in cellular companies and pledged to work toward debt rescheduling for some mobile firms.

"These decisions are bound to attract greater foreign investment because the regulatory environment is now more stable," Prashant Singhal, director for telecoms practice at Ernst & Young, told Reuters.

The move has boosted the stock of Bharti Tele-Ventures Ltd, India's largest GSM services firm and 16 percent owned by Singapore Telecommunications, to an all-time high. Foreign investors already own 48.5 percent stake in the company.

Possible forthcoming deals include Idea Cellular Ltd, one-third owned by AT&T Wireless Services Inc. Idea Cellular is in talks to buy out the mobile operations of mid-sized Escotel Mobile Communications Ltd.

"Most (unlisted) cellular firms are bleeding to death and would be more than happy to be bought out," said one analyst who declined to be named. "This sector needs a long-term commitment."

Many global telecoms firms and overseas financial investors are tapping India's telecoms potential where less than three people in 100 own a mobile phone compared with 20 in China and more than 60 in Europe.

About two million new users are coming in each month.

"At this pace, we're set to overtake 43 million fixed-line connections in 2004," said T.V. Ramachandran, chief of Cellular Operators' Association. "We'll also sharply reduce the gap in new additions with China, which adds about five million (users) a month."

UNLIMITED COMPETITION

In October the government opened the wireless sector to unlimited competition, scrapping a requirement for separate licenses for mobile and fixed-line services.

It introduced a single permit that allows fixed-line firms to provide a bouquet of mobile services, a move protested by the money-losing cellular firms who said it amounted to a backdoor entry into their business and violated earlier agreements.

The companies, who have invested $5 billion and lost over $2 billion due to cut-throat competition, mounted legal challenges to delay the policy that was seen boosting the prospects of the telecom units of the powerful Reliance and Tata groups that use newer CDMA technology.

The cellular sector, which began services nine years ago, demanded more than $4 billion in compensation for the loss of its monopoly on mobile services.

The government responded by cutting licence fees to 6-10 percent of a company's gross revenue from 8-12 percent. It further reduced the fees by two percentage points for cellular firms in 19 of the 23 zones making up the sector.

The drop in the fee would cost the government around $212 million but a large chunk of the benefit would go to two state-run telecoms firms.

Cellular firms say they will focus on grabbing market share in the 28-million-subscriber sector likely to grow to 100 million by 2005 thanks to one of the world's lowest call rates.

"The market is growing at break-neck speed and we need to concentrate our energy to capture a major slice for ourselves," said Vikram Mehmi, chief of Idea Cellular, the third-ranked mobile firm with 2.2 million cellular users.

The communications ministry has also said it would ask the cabinet to allow foreign investors to hold as much as 74 percent of a telecoms company compared with the current 49 percent. The increase would occur via portfolio investments as the companies list on the stock exchange.

The Indian mobile unit of Hutchison Whampoa is among companies planning an initial public offering.

"The (proposed) hike in the limit was the trigger," said Arun Kejriwal, chief of independent research firm KRIS. "These steps show the government's resolve in settling pending disputes and kicking in more growth in the sector."

Reuters