Top sector for foreign direct investment in India

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India wants to install  around 25 million direct exchange lines by  2001 and this will require an investment of
US$ 22 billion.

National Taskforce on Information Technology & Software Development

Electronic& Computer Software Export Promotion Council

National Association of Software & Service Companies

Department of Telecommunications (DoT)

 Internet Services open to private and foreign investors


Telecom equipment and services

Points to be noted:

  • India has a mere 1.2 telephones for every 100 of its people. This is way below international standards and is not becoming of a country aspiring to be a major player in the global economy of the 21st century. This means that opportunities for investment in this sector are immense.

  • Basic voice services is the biggest market. Installation of around 25 million direct exchange lines by the year 2001 will require an investment of US$ 22 billion.

  • The cumulative investment up to the year 2001 to meet demand for cellular mobile and radio paging services is estimated at US$ 8 billion and US$ 1 billion respectively.

  • Investment in other Value Added Services (VAS) up to 2001 are estimated at US$ 3.5 billion.

  • The government cannot make investments of this magnitude because of resource limitations. The private sector and foreign companies are therefore welcomed into this sector, both as direct investors and exporters of equipment and technology.

  • VSAT services, though privatised, have not taken off in India. Demand for electronic mail, video-conferencing is not strong enough to justify investment. Besides, licence fees to be paid to the Department of Telecommunications (DoT) are too high given the size of demand.

  • The telecom sector has witnessed the presence of many leading foreign companies including US companies: AT&T, Motorola, Nynex, US West, Hughes, Harris, Qualcomm, Sprint, Telstra, NTT, Singapore Telecom, Philippine Telecom, Bezeq, Siemens, Ericsson, Nokia, Fujitsu, Alcatel, and Bell Canada among others.

  • The DoT retains its monopoly as of now as the main service provider short- and long-distance basic services. Private operators have to obtain licenses from DoT and work with it on a revenue sharing basis. It has been agreed in principle that private companies will be allowed to establish their own gateways in addition to using the gateways of DoT, VSNL or authorised public\government organisations. But this concept will be put into practice only after security-related issues are looked intoi by a committee that has already been set up.

  • Potential investors should be aware that telecom privatisation has been hit with snags. Cellular phone operators have been taken by unpleasant surprises. Both the bidders and the government had then estimated an average air-time use of 250 minutes per subscriber per month. But the actual use, as at May 1998, was only 140 minutes. Each subscriber now spends an average of Rs.1,100 a month on an average, but the industry needs a per subscriber expenditure of Rs. 1,800 every month to make commercial sense. This situation is building pressure to extend the licenses to 15-year-periods as opposed to the current 10 years. The extension will bring in extra revenue which can help the private operators make some money for themselves and pass a part of it to the customer as well (given the intense competition among the private operators).

  • One possibility is that India may follow the Chinese model of cellular phone services, which is to charge a high monthly rental but low air-time charge. This may reduce the number of subscribers but those who subscribe will have a higher spending power. At present, India charges a monthly rental of only US$4 (compared to US$30 in China) while the average air-time charge in India is 20 US cents (compared to only 5 cents in China).

  • The case for increasing monthly rental is clear: The present monthly rental of US$4 (approx. Rs. 160) for cell-phones is less than the rental for pagers (which is Rs.250): this is clearly an anomalous situation which cannot last long. The profile of the cell-phone owner in India is therefore poised to change towards the better-off classes who can pay higher monthly rental and talk longer on cheaper air-time rates. This will drive out the lower middle classes from the cell-phone circuit, but middle-to-upper middle classes in India are huge enough to make commercial sense for the private operators.

  • It can be expected that responsibility for resolving telecom issues will gradually devolve to the states. Customs duty on parts of telecommunications equipment and sub-assemblies thereof are on the decline and will be ultimately be totally eliminated in accordance with the telecom agreement of the World Trade Organisation.

  • Provision of Internet services has been thrown open to domestic and foreign investors with effect from October 7, 1998.

Internet Services
Electronic & Computer Software Export Promotion Council
National Taskforce on Information Technology & Software Development
National Association of Software & Service Companies
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