Foreign direct investment in the Indian telecommunications sector

indicating that India will have 200 million mobile phone users by the end of 2007.²¹ There are a
substantial number of mobile phone operators and this has promoted competition and benefited
consumers through reduced cost of handsets and service contracts. Telecommunications growth
by the state owned enterprises have primarily occurred in the area of fixed phone lines.

Recently, the Indian government has indicated that the telecommunications sector
requires $68.6 billion in investment to provide broadband services and 150 million new
telecommunications lines.²²

Foreign firms wishing to invest in the Indian telecommunications sector are currently
limited to owning 74 percent of local companies that provide mobile telephone access, basic,
long-distance telephony and other related services. Internet-related services are excluded from
the 49 percent cap and can be funded via FDI up to 100 percent. Up to 100 percent of FDI is
permitted for manufacturing activities. Chief management is required to be Indian residents. The
new policy includes restrictions on subscriber privacy.²³

However, it has been estimated that some companies have already made investments in
Indian telecom companies beyond 74 percent via alternative financing methods.²⁴ Recently, there
have been additional attempts to clarify regulations and improve coordination among the
different branches of the Indian government responsible for regulating telecommunications
investment.²⁵

New foreign direct investment is expected to come from current investors. Up to 32
telecommunications companies entered the Indian market through joint ventures in 1995.²⁶ Many
²¹ Cellular Operators Association of India
²² Telecomworldwire, March 22, 2005.

²³ “Increased FDI in telecoms” International Financial Law Review, vol. 24 (3): 125, March 2005. and Economist
Intelligence Unit Country Report - Main report: March 10th 2005

²⁴ Knight Ridder Tribune Business News. Washington: Feb 3, 2005. pg. 1 and Businessline. Chennai: Oct 26, 2004.
pg. 1

²⁵ “Norms for FDI in telecom.” India Telecom, 11 (3): 4, March 2005.

²⁶ Businessline. Chennai: Oct 26, 2004. pg. 10

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