GSM players want old FDI regime back

The Union government is a divided house with each players sticking to their guns.

GSM cellular operators have approached the department of telecommunications (DoT), suggesting that the controversial Press Note 5, which enhanced foreign direct investment in telecom services from 48 per cent to 74 per cent, be scrapped.

"We believe that given the current situation, where there is no consensus on the issue, we should revert to the earlier regime, which is the fairest," said TV Ramachandran, secretary-general of the Cellular Operators' Association of India (COAI).

Under the earlier regime, FDI was restricted to 49 per cent but, under a pyramidal structure, operators could increase the foreign holding to over 74 per cent through indirect equity holding. Most companies like Bharti Airtel and Hutchison-Essar followed this route.

The COAI view is echoed by Bharti Airtel which, in a statement, pointed out that in case a consensus was not reached "a suspension or revocation of Press Note 5 may be the best option".

The move comes at a time when strong differences have surfaced in the government on the question of implementation of Press Note 5, which imposes various security restrictions on telecom operators, including not being able to have foreign CEOs and allowing remote access to networks to companies located abroad.

These restrictions were introduced after the government decided to increase the composite FDI limit, including foreign holding held indirectly, in telecom services from 49 per cent to 74.

The Prime Minister's Office is of the opinion that Press Note 5 should not be applicable to operators that have less than 49 per cent FDI, but to companies with FDI of between 49 and 74 per cent.

It is pushing for a more diluted version of the restrictions, and is willing to allow foreign CEOs as well as remote access to networks, provided they take permission from the ministry of home affairs.

The DoT, on the other hand, wants Press Note 5, even in its diluted form, to be applicable to all operators with any foreign holding. This is in line with the demand of GSM operators, which have been asking for a level playing field among operators, irrespective of the level of foreign holding.

Even the ministry of defence had raised concerns that the DoT's Cabinet note had failed to take security concerns into consideration.

As a result, the DoT is preparing a Cabinet note that envisages keeping Press Note 5 under suspension ""meaning that the notification, which was issued last year, will not be implemented "" till further discussions.

As a result, the October 3 deadline for implementation of the Press Note is now being kept in abeyance.