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India – Communications Sector Set To Attract More Foreign Investment.

11 September, 2013

 

Legal News & Analysis – Asia Pacific – India – TMT 

 

There have been a number of recent developments in the telecoms and broadcasting sectors in India, as part of attempts to improve the regulatory environment and encourage more foreign investment. These include the relaxation of foreign investment limits, approval routes and other conditions for specified telecoms services, the issue of a new unified licence covering a range of telecoms services, and the recommendation to relax foreign investment limits and approval routes in various segments of the broadcasting sector.

 

1. 100% foreign ownership permitted for specified telecoms services

 

Background

 

Chapter 6 of the Consolidated FDI Policy dated 5 April 2013 contains sector specific conditions covering both prohibited sectors and permitted sectors for foreign investment.

 

“Telecom Services”, set out in paragraph 6.2.15 and permitted for foreign investment, are divided into:

 

Category 1 Telecom services – including:

  • basic;
  • cellular;
  • unified access services;
  • national/ international long distance;
  • V-Sat;
  • public mobile radio trunked services (PMRTS);
  • global mobile personal communications services (GMPCS); and
  • other value-added services;
Category 2
  • Internet service providers (ISP) with gateways;
  • ISP not providing gateways, i.e. without gateways (both for satellite and marine cables);
  • radio paging;
  • end-to-end bandwidth; and
Category 3
  • infrastructure provider category 1 (providing dark fibre, right of way, duct space, tower);
  • electronic mail; and
  • voice mail.

 

 

The Consolidated FDI Policy provides two routes for foreign direct investment (“FDI“) entry, i.e. the Automatic Route and the Government/ Foreign Investment Promotion Board (“FIPB“) Route. The Automatic Route means that approval from the Government will not be required for foreign investment. In contrast, the Government/ FIPB Route requires the foreign investor to obtain a prior approval from the Government, with such applications being considered by the FIPB under the Ministry of Finance.

 

Under the Consolidated FDI Policy dated 5 April 2013, the FDI limits in the three categories of “Telecoms Services” were as follows:

 

Category 1 49% via the Automatic Route or 74% via the Government/ FIPB Route
Category 2 49% via the Automatic Route or 74% via the Government/ FIPB Route
Category 3 49% via the Automatic Route or 100% via the Government/ FIPB Route

 

Call Centres, Business Process Outsourcing (BPO), tele-marketing, tele-education, etc. registered with the Department of Telecommunications (“DoT“) are referred to as Other Service Providers (“OSPs“) in the Consolidated FDI Policy. 100% FDI is permitted for OSPs.

 

Press Note No. 6

 

The Department of Industrial Policy and Promotion (“DIPP“) of the Ministry of Commerce and Industry of India released Press Note No. 6 (2013 Series) on 22 August 2013. Press Note No. 6 amends the Consolidated FDI Policy dated 5 April 2013 and took immediate effect.

 

In addition to changes to specified telecoms services, Press Note No. 6 also includes changes to foreign investment limits, routes and other conditions in various other sectors, including tea, petroleum and natural gas, defence, courier services, test marketing, single-brand product retail trading, asset reconstruction companies, commodity exchanges, credit information companies, infrastructure companies in the securities market and power exchanges. Separately, since the last version of the Consolidated FDI Policy dated 5 April 2013, changes have also been made for multi-brand retail trading.

 

As a result of Press Note No. 6, the FDI limits for all Telecom Services are as follows:

 

Category 1 49% via the Automatic Route or 100% via the Government/ FIPB Route
Category 2
Category 3

 

 

 

 

 

2. New unified licence

 

On 2 August 2013, the DoT issued a new unified licence (“UL“) and, on 19 August 2013, issued guidelines for the granting of ULs.

 

Key features of the UL are as follows:

 

  • Licence term: 20 years, renewable for another 10 years.
  • Entry fee: A one-time non-refundable fee calculated by reference to the service area and each authorised service, payable before signing of the UL and for each additional authorisation. The entry fee is subject to a maximum of Rupees 150 million (approximately US$2 million).
  • Licence fee: An annual fee equal to 8% of the adjusted gross revenue of the licensee, for each service area and authorised service, from the effective date of the authorisation. From the second year following the effective date of the authorisation, the licence fee shall be subject to a minimum of 10% of the entry fee for the relevant service area and authorised service.
  • Equity holding in other companies: In relation to holders of spectrum, the licensee or its promoter (legal entities which hold 10% or more equity in the licensee, other than the government, financial institutions and scheduled banks) may not directly or indirectly hold any beneficial/ equity interest in another licensee with spectrum in the same service area. For such existing arrangements, there is a grace period of one year after the UL is granted.
  • Migration of existing licences: All existing telecoms services licensees are eligible to migrate to a UL before their existing licences expire, but all of their respective existing licences would need to be migrated at that time. Migration to a UL is also mandatory:
    • upon expiry of any current licence;
    • if an existing licensee wishes to expand the scope of any licence; or
    • if an existing licensee engages in any merger and acquisition activity (whereby all existing licences of the merged entity must be migrated).

 

The UL contains other general, commercial, financial, technical, operating and security conditions, as well as service specific terms. The UL guidelines also set out other conditions, requirements and 

 

3. Will broadcasting be next?

 

On 22 August 2013, the Telecom Regulatory Authority of India issued an information note (Press release No. 62/ 2013) recommending changes to the FDI limits and approval routes in various segments of the broadcasting sector (broadly speaking, broadcast carriage services, television content services and FM radio services).

 

A summary of the existing and recommended FDI limits and approval routes is set out in the table below:

 

Segment Existing FDI limits/ approval route Recommended FDI limits/ approval route
Broadcast Carriage Services
  • DTH, HITS, IPTV, Mobile TV, Teleports
  • Cable Networks ( Multi System Operators (MSOs) operating at National or State or District level and undertaking upgradation of networks towards digitalisation and addressability)
74%49% via the Automatic Route

Beyond 49% via the Government/ FIPB Route

100%49% via the Automatic Route

Beyond 49% via the Government/ FIPB Route

  • Cable Networks (Other MSOs not undertaking upgradation of networks towards digitisation with addressability and Local Cable Operators (LCOs))
49% via the Automatic Route
TV Content Services Downlinking of TV Channels 100% via the Government/ FIPB Route 100% via the Government/ FIPB Route
Uplinking of non-‘News & Current Affairs’ TV Channels
Uplinking of ‘News & Current Affairs’ TV Channels 26% via the Government/ FIPB Route 49% via the Government/ FIPB Route
FM Radio services FM Radio

 

herbert smith Freehills

 

For further information, please contact:

 

Mark Robinson, Herbert Smith Freehills
mark.robinson@hsf.com

 

Chris Parsons, Partner, Herbert Smith Freehills
chris.parsons@hsf.com

 

Peggy Chow, Herbert Smith Freehills
peggy.chow@hsf.com

 

Nimi Patel, Herbert Smith Freehills
nimi.patel@hsf.com

 

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