India allows wholly foreign-owned mobile operators

Foreign companies are expected to increase their stakes in Indian joint ventures

India has decided to allow mobile services operations to be wholly owned by foreign investors, a move that is expected to lead multinationals to take full control of their Indian joint ventures by buying out local partners.

The earlier limit of 74 percent on foreign ownership in mobile services companies did not deter companies such as Vodafone, Telenor or Sistema from setting up joint ventures in India.

Some of these companies may now take full ownership and control of their Indian subsidiaries, said Kamlesh Bhatia, research director at Gartner.

But it is unlikely that foreign mobile companies that have not invested in the country so far will now be tempted, Bhatia said. India has to first overhaul the country's regulatory framework including its taxation laws to attract new entrants, he added.

Some foreign companies have been hit over interpretations of Indian rules and procedures. Vodafone is involved in a dispute with the Indian government for not withholding tax from Hutchison Telecommunications when buying its stake in 2007 in Hutchison Essar, a large Indian mobile operator. In a separate case, India's Supreme Court ruled last year that 122 mobile licenses across 22 service areas should be canceled because they were allotted irregularly by the government in 2008. Etisalat was among the operators that pulled out of India after losing its licenses.

The liberalization of foreign equity in the telecom sector was one of several measures announced late Tuesday by the Indian government. It will also open up sectors such as retail trading and commodity and stock exchanges to foreign investments. The policies will be placed before the country's cabinet of ministers for approval.

The permission for foreign companies to hold 100 percent stakes in Indian mobile operators could also be a contributory factor in the consolidation of the mobile industry in India, with some companies even selling out, Bhatia said. Acquisitions, large license fees and stiff competition have affected a number of mobile companies that have as a result large debt burdens and have posted losses.

Consumers could benefit from the new investments in terms of the quality and innovation in services offered as competition builds up in the Indian mobile services market, Bhatia said.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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Tags governmentregulationGartnerVodafonetelecommunicationCarriersEtisalatSistemaTelenor

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John Ribeiro

IDG News Service
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