Financial Daily from THE HINDU group of publications
Saturday, Jul 17, 2004

News
Features
Stocks
Cross Currency
Shipping
Archives
Google

Group Sites

Info-Tech - Telecommunications


How much Indian is the telecom sector?

Thomas K. Thomas

New Delhi , July 16

THE debate over raising the foreign direct investment in telecom from 49 per cent to 74 per cent has thrown up an interesting question as to how Indian is the country's telecom sector and whether after five years of liberalisation do we need foreign funds for achieving the tele-density targets.

First, look at numbers that point to the Indianess of the telecom sector. The largest two players in the country — Bharat Sanchar Nigam Ltd and Reliance Infocomm — which together account for more than 70 per cent of the investment made in the telecom sector, are fully Indian companies. Together, the two companies have about 45 million subscribers of the total 70-million user base in the country.

The foreign investment made in the Indian telecom sector, about $2 billion post-liberalisation, is just about 20 per cent of the total investments made in the sector. Reliance Infocomm and Tata Telservices have made investments up to $4 billion-$5 billion. And if you take the investments made by the state-owned BSNL, which was about Rs 20,000 crore in the last year, then the investment made by foreign companies in India does look puny.

In comparison, countries like China has received FDI worth $52 billion, primarily in the manufacturing sector, despite being a relatively closed economy. That's equivalent to the investment needed by India over the next five years to take the subscriber base to over 200 million. Telecom analysts believe that it is likely to come by following the Government's decision to increase FDI cap from 49 per cent to 74 per cent. Mr Sanjay Mehta of Ernst & Young says: "Telecom is a capital intensive sector and one needs foreign funds to fulfil the targets of tele-density. If anyone is worried about security concerns in involving foreigners in a crucial sector like communications, then there are other means to monitor and plug leakages."

However, if one were to remove BSNL, which has a 40-million subscriber base, from the overall investment picture, the foreign influence on the Indian communication sector looks impressive. More than 60 per cent of the booming mobile market is controlled by companies which have 49 per cent foreign stake, 100 per cent of the mobile handset being used in the market are foreign brands, 65 per cent of the call centre business is set up by multinational companies, 80 per cent of the telecom equipment market is dominated by European and American manufacturers and telecom has received the second largest foreign investment in the country after the oil sector. India is among the very few countries in the world where FDI cap is so high in the communications sector.

The biggest investment has been in the cellular segment. The top three private Global System for Mobile (GSM)-based companies Bharti Tele-Ventures, Essar-Hutchison and Idea Cellular have between 49 per cent and 33 per cent foreign equity.

Investments to the tune of Rs 5,000 crore made directly in the cellular sector have been primarily by Hong Kong-based Hutchison Whampoa and Singapore Government's investment vehicle Temasek Holdings.

Even the smaller players BPL Communication and Spice Telecom, the cellular operator in Punjab, has 49 per cent foreign equity.

These five companies together account for about 22 million subscribers of the 29 million GSM users in the country. Even in the mobile handset segment, it's foreign brands such as Nokia, Motorola and Samsung ruling the market. Though no one has invested to set up a manufacturing unit in the country so far, with 100 per cent foreign equity allowed in manufacturing, most of the companies are actively looking at the option.

It's the same scenario in the telecom equipment side. Except for a few companies like ITI primarily catering to the fixed line switching requirements of BSNL, most operators prefer to import.

Of the Rs 10,000-crore FDI received by the Indian telecom sector, only Rs 1,500 crore has gone to the manufacturing segment over the last 15 years.

The only segment, other than cellular, which has received attention by foreign investors is the telecom software and call centre business where big names like Nokia, Ericsson, Alcatel, Motorola, GE, Convergys have set up base in the country.

According to Mr Kiran Karnik, President, Nasscom, the interest shown by multinational companies in the BPO segment is good for the country as it not only brings in employment but also best practices and awareness about India's potential as an investment destination.

More Stories on : Telecommunications | Foreign Direct Investment | Budget

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page



Stories in this Section
Samsung introduces India-specific packs for storage media devices


Automated Workflow announces new board of advisors
Landline talk: J&K, Bihar take the honours
Tata Tele planning major expansion in Maharashtra, Goa
How much Indian is the telecom sector?
Idea Cellular to catch them young in Delhi
All that glitters...
Idea Cellular install sixth mobile switching centre in Pune
Toshiba, HCL InfiNet peripherals
PCS Ind cuts PC prices by 4%
Satyam to expand Orissa operations
`Indian IT cos may lose to global firms on Basel II'
Patni signs OEM pact with InteQ
Atsmai Tech in pact with Aditi
Brigade Corp set to expand delivery centres
Beagle worm variant identified
Sting Broadband in talks to offer 4G wireless system
A yen for correction spells orders for KG Info unit
`IT sector clocks 24 pc growth in 2003-04'
Panel to probe HiTec City land deal with L&T



The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |

Copyright 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line