Government Allows 100% FDI in Telecom via Automatic Route and More

The government built on its reforms package for the telecom sector. One of the major announcements was 100% FDI in telecom through the automatic route. Currently, while 100% FDI in telecom is permitted, only 49% is allowed through the automatic route. Under the new package, companies like Vodafone Idea would find it easier to raise capital abroad.

The 100% FDI in telecom is not just limited to provision of telecom services. It also covers other business like related telecom services, support services like data centres and telecom infrastructure items like towers and cables. This should come as a boost to companies like Tata Communication and Infratel, which would find it easier to raise foreign money.

This is an important step towards the ease of doing business in all aspects of the telecom sector. The sector has been under a lot of stress in recent times due to the huge AGR burden, high SUC charges payable as well as stiff competition from undercutting of price. This move will enable telecom companies to build adequate funding war-chests.

One of the major objections that the telecom companies had was the steep license fees and spectrum usage charges that were levied by the government. The government has already promised some changes. In the announcement last month, the government promised rationalization of SUC charges and exclusion of non-telecom revenues from ambit of AGR.

However, the issue of huge bank guarantees still remained. These bank guarantee entail huge fee payments to the banks and also had become a major solvency challenge to the telecom companies. In the latest announcement on 06-Oct, the government has made some important changes on the extent of bank and performance guarantees required.

For telecom operators the requirement of bank and performance guarantees has been slashed by 80%, which would be a big boost to telecom players bidding for spectrum. This will be with retrospective effect. It will apply to the old telecom licenses in the UASL category as well as to the Unified licenses issued post 2012.

The government has again done its bit and assured that this is still work in progress. There is hope that more goodies could come the way of telecom companies.

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