For Indian Telcos, Adapt or Perish!

Hugh Ujhazy
Hugh Ujhazy

Summary Bullets:

  • Foreign ownership limits on telcos in India have been removed, paving the way for global and regional players to invest heavily in the Indian market.
  • The road ahead is not without risk, as Indian growth slows and substantial regulatory barriers remain for all market players.

In July 2013, the Indian government lifted the limit of 74% foreign ownership for telcos.  Foreign carriers such as Maxis, Sistema, Uninor and Vodafone currently operate with local partners and constantly walk a tightrope to manage their investments at the government-mandated level.

India’s telecom sector is heavily regulated, as operators are granted geographic and spectrum licenses with restrictions imposed on cross-carrier traffic.  The July relaxation of investment rules was a fizzle rather than a bang for India telcos.  It wasn’t until September that the first foreign carrier applied to increase its share to 100%.  SingTel bought out local partners for $1 million (USD).  Vodafone followed quickly, throwing down $1.65 billion for full ownership of Vodafone India.
While major Indian carriers such as Tata Communications continue to derive the bulk of their revenue from non-domestic operations, foreign carriers are driving the domestic voice and data market.  In this topsy-turvy environment, the foreign investment change is a step in the right direction, signaling further relaxation in regulation.

While obstacles remain (greater clarity in spectrum policy, easier mergers and acquisitions), the increased competition and foreign investment is probably good news for the buyer of network and IT, including foreign and India-based MNCs that are looking for connectivity and value-added services into India.  Increased competition will kick start sweeping change in the Indian market as providers are challenged to be more competitive while offering better products and more attractive pricing.

Change is coming and the arrival of foreign carrier dollars telegraphs a clear signal to domestic providers: adapt to a more dynamic telco environment or face extinction.

What do you think?

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