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Press
Note No. 5- FDI Limit in Telecom Sector increased to 74%
Subsequent
to our iCe Hotline dated October 21, 2005 on the Foreign Direct
Investment ("FDI") limit in telecom sector, the Department
of Telecommunication ("DoT") has issued Press Note No.5
(2005 series) ("Notification") which has enhanced the FDI
ceiling in telecom services (such as 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) ("Telecom Services"), from 49% to
74%. The Notification modifies the applicability of Press Note
15 (1998 series) and Press Note 2 (2000 series) to the telecom
sector.
Following
are the salient features of the Notification, in addition to those
discussed in our iCe
Hotline dated October 21, 2005:
Investment
through Automatic Route/ FIPB Approval:
The
Notification clarifies that FDI in Telecom Services up to 49%
will continue to be on the automatic route. FDI shall be subject
to the laws of India and not the laws of the foreign country/countries.
Foreign Investment Promotion Board ("FIPB") approval shall
be required for FDI in the licensee company ("Licensee Company")
Indian promoters/investment companies including their holding
companies if it has a bearing on the overall ceiling of 74%. While
approving the investment proposals, the FIPB is required to ensure
that the investment is not by unfriendly countries; however, the
term "unfriendly country" has not been defined in the Notification.
The conditions and restrictions specified in Para 1 of the Notification
are made applicable to existing companies providing Telecom Services
as well.
Foreign
subscribers and Roaming Agreements:
The
Licensee Company must provide traceable identity of their subscribers
and in the event of providing service to roaming subscribers of
a foreign companies, the Indian company must maintain traceable
identity of such roaming subscribers from the foreign companies
as a part of its roaming agreement. When the Licensee Company
enters into roaming agreements with service providers outside
India, it must provide to the concerned authority, on demand,
the telephone numbers of the foreign subscribers using an Indian
operator's network while roaming.
Enhanced
power of the Licensor:
The
Department of Communications is required to enforce the conditions
specified in the Notification by amendment of the licence. A non-obstante
clause has to be included in the licence agreement which confers
powers upon the licensor to cancel the licence under certain defined
circumstances. The Licensee Company has to acknowledge compliance
with the licence agreement as a part of its Memorandum of Association
and Articles of Association. The DoT can exercise its discretion
in restricting the Licensee Company from operating in any sensitive
area if it threatens national security.
The
Notification also seeks to enhance the level of privacy of voice
and data as monitoring of voice and data is allowed only with
prior authorization by the Union Home Secretary or the respective
Home Secretaries of the States/Union Territories. To monitor traffic,
the Licensee Company is expected to provide blind access to its
network and other facilities as well as to its books of accounts
to the security agencies.
The
Notification also specifies that the licence will be deemed to
be cancelled if the licence conditions envisaged in the Notification
are not adhered to by the Licensee Company and the licensor is
vested with the right to encash the performance bank guarantee(s).
This
Notification, though a welcome change as far as further liberalizing
the telecom sector is concerned, has not gone as far as it could
have in breaking the shackles. National security concerns, though
of great importance, have created hurdles which are visible in
this Notification.
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You
can direct your queries or comments to the authors
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Source:
http://www.dot.gov.in/ip/fdi2005.pdf
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