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:

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:

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:

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:

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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