UPDATE: Foreign Telecom Firms Not Eager On India Bandwidth Auctions
April 30 2012 - 6:04AM
Dow Jones News
Foreign telecom majors such as Australia's Telstra Corp.
(TLS.AU) and Sweden's TeliaSonera AB (TLSN.SK) Monday said they
won't participate in India's upcoming bandwidth auctions for basic
mobile phone services, highlighting the fall from grace of the
South Asian country as a lucrative investment destination.
This comes on the same day that Norway's Telenor ASA (TEL.OS)
threatened to pull out of India, saying that the new base rates
proposed by India's telecom regulator for the auctions are far too
high.
The government said it will seek clarifications from the
regulator on the suggestions, including those on the starting price
and refarming of spectrum which have upset existing players as well
as industry bodies.
The government expects to finalise the auction rules by the end
of May.
Telenor is set to lose its permits in India because of a Feb 2
Supreme Court order which shook foreign investors by cancelling 122
telecom licenses, including 22 held by Telenor, at the center of a
corruption case. The bandwidth must now be auctioned by Aug.
31.
The issue has mangled the government's image and sent a federal
minister, several corporate executives and officials to jail.
The country's top federal investigation agency says then-telecom
minister Andimuthu Raja and his cronies took millions of dollars in
bribes for handing out the licenses, which reportedly led to a
potential revenue loss of $7 billion for the government.
India was until recently a favored investment destination for
many foreign companies, especially telecom operators which wanted
to offset slowing growth in their home markets.
Companies such as Vodafone Group PLC, Singapore
Telecommunications Ltd. and NTT DoCoMo Inc. have invested in India
directly or through local operators, driving the pace of growth in
India's telecom sector to the fastest in the world.
But recent developments, particularly the Supreme Court order
and a government proposal to retrospectively tax corporate deals
involving Indian assets, have increased the risk on the billions of
dollars that foreign companies have invested in the country.
U.K.-based Vodafone, which in 2007 purchased Hutchison Whampoa
Ltd.'s stake in an Indian company, is likely to be particularly hit
by the tax move. If parliament approves the proposal, the company
may have to pay more than $2 billion in taxes.
In the Telenor issue, the company said it is "working actively"
to get an acceptable solution to the new proposals. But, because of
the uncertain policy environment, it has decided to write down its
remaining assets in India, amounting to NOK3.9 billion ($680
million). It had previously written down NOK4.2 billion in relation
to licenses and goodwill in the South Asian nation.
Another foreign company, Bahrain Telecommunications Co.
(BATELCO.BH), Monday said it may invest in some existing operators
but that it is unlikely to participate in the auctions.
Telstra, in an emailed statement to Dow Jones Newswires, didn't
say why it won't participate in the auctions while TeliaSonera,
Europe's fifth-largest mobile phone operator, said it isn't
interested.
The U.S.' AT&T Inc. (T), which has been often cited to have
a keen interest in the Indian telecom sector, declined comment.
The cold response indicates the companies are wary of the risks
of investing in India, said Romal Shetty, national head for telecom
at consulting firm KPMG.
"Foreign investors want certainty on regulations," he added,
pointing to a key complaint from foreign investors: that the policy
climate is far too uncertain.
He said that intense competition, with 10 or more operators in
some of the country's 22 telecom service areas, is also a
deterrent.
His views on policy are supported by a recent central bank
study, which found that institutional factors, such as policy
uncertainty, are causing a slowdown in foreign direct
investment.
Net foreign capital investment in India dropped to $387 million
in March from $7.2 billion in February. In April, there has been a
net outflow of about $142.6 million.
--By R.Jai Krishna, Dow Jones Newswires, +91-11-4356-3333;
krishna.jai@dowjones.com
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