INDIA OPTIMISTIC FOR TELECOM GROWTH.

India has posted recent growth in telecommunications leading the Government to consider relaxing Foreign Direct Investment (FDI) restrictions on the sector. The Financial Express (Mumbai the new name for Bombay) reported at the end of December that there was new pressure to move the FDI limit on telecom from 49 percent to 74 percent.

The move has been tried before with without success. The move has the support of India's Information and Communications Technology (ICT) minister who said there was a need for substantial capital infusion. A leading cellular executive was quoted by the Express to the effect that major capital inflows to the sector would set off a wave of consolidation, presumably to the benefit of India's telecom consumers. Nonetheless, both landline and cellular phone service are increasing. The Government has set a 250-million telephone target for 2007 total fixed and wireless.

Currently, India has over 85-million fixed and wireless phones. The country's teledensity defined as the number of operational telephone lines per 100 inhabitants is 8.2 percent. The total number of telephones is nearly evenly divided between fixed, at 43-million, and wireless, at 42-million.

If the Government's 2007 target is met, it would mean that India would have a total of nearly 3 times the number of telephones it has today, growth of almost 150 percent. According to the Express's story, even in the unlikely event the Government does agree to raise the FDI limit, foreign investors might not be too enthusiastic about the opportunity.

The reason: The Telecom Regulatory Authority of India (Tria) is apparently badly in need of regulatory reform. The Express quotes another leading telecom executive on the subject. He says, "The biggest challenge vis-a-vis attracting investment is to bring back a perception of fair, independent and neutral regulation, which has been missing since 2001."

Of interest, too, are preliminary proposals to set up manufacturing facilities in India announced by handset manufacturers such as Nokia, Motorola, Ericsson and Hyundai Mobile. These and other foreign investments would likely give consumers greater choices in terms of telecom features and functions. But the question of pricing remains open. Would prices fall? The Express, citing a consensus of various service providers, says 'no'.

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