US seeks transparency in FDI norms for ISPs

Earlier, India had allowed 100% foreign ownership of ISPs.

Expressing concern over what it calls barriers for American telecom companies in India, the US has sought from India transparency in the procedure for modifying foreign direct investment (FDI) norms for Internet Service Providers (ISPs).

“(The) US Trade Representative (USTR) urges India to clarify this issue as soon as possible, to afford greater regulatory certainty to companies already operating in India, and to comply with its GATS (General Agreement on Trade in Services) commitments to make such measures publicly available,” USTR Ron Kirk said in his ‘Report of the 1377 Review’.

The 20-page report, identifies barriers facing US telecommunications service and equipment suppliers, evaluates progress toward resolving ongoing problems, and lays out specific telecom-related issues on which USTR will focus its monitoring and enforcement efforts this year.

India previously had allowed 100 per cent foreign ownership of ISPs. However in 2007, India’s independent regulator Telecom Regulatory Authority of India (Trai) issued recommendations calling for a reduction in foreign ownership of ISPs to the same level currently allowed for international and domestic long distance operators (74 per cent).

“Although the (Trai) recommendations did suggest that companies be given a grace period to come into compliance with the new ownership rules, the grace period has never been formalised by India, and as a result, many companies are uncertain as to their status in the market,” the report noted.

“They are also uncertain about whether or not they must seek new licences under their new ownership structure,” the report said, adding as a result of which commentators have raised concerns this year about a lack of transparency in India’s process for modifying FDI requirements for ISP in India.

Among other things, the report highlights countries whose independent regulatory agencies need strengthening and whose transparency policies need improvement. The countries included in this section are China, Egypt, Germany, India, Israel, Mexico and South Africa.

The report also said that India’s strict telecom regulations such as encryption norms on handsets acted as a barrier to information protection for companies operating in India.

Encryption in a telecom network is a process which does not allow everybody to have access to protected information.

The report said India in 2007 issued rules regulating the use of encryption at key strengths above 40 bits in telecommunication products (handsets for example).

Under these rules, use of encryptions greater than 40 bits is allowed, but users must receive written permission from the Department of Telecommunications (DoT) and deposit the decryption key, split into two parts, with the DoT, Kirk noted in his report.

In his latest report of the 1377 Review, Kirk has said India’s restrictions on use of strong encryption are both confusing and detrimental to the security of companies operating in India.

“Furthermore, India prohibits use of any encryption on a dedicated network (as opposed to a public network) without prior approval from the DoT,” he said. India has resorted to such a practice as a security measure.