Last week, the Union Cabinet deferred the decision to allow foreign investment up to 74 percent in telecom companies—once again on the issue of national security. The very next day, many newspapers reported the event. Some also commented that this went against an agreement that the Government had reached earlier with GSM operators—in return for the operators withdrawing court cases, the Government would increase the FDI limit to 74 percent. Some reports also said that there were some operators who need resources much less than the others and therefore, would like to prevent the raising of the limits to starve their competitors of funds. While the veracity of these reports are questionable, they illustrate how trivially this issue is being discussed.

We need to decide either to make do with less money and hence, less infrastructure, or encourage investment without impinging on national security Shyam Malhotra editor-in-chief VOICE&DATA

Let us assume that foreign ownership and management control of the telecommunication facilities of a country is a security issue. If so, how can it be reduced to a level where there is a barter between court cases and the extent of ownership? Clearly not. Then, why even a whiff of such news items? Similarly, if there are serious issues of security, then should they be manipulated for competitive considerations?

One reason is that there has been a complete lack of an open discussion on this subject, leading to speculation. What are the security issues? How can they be managed? What is the role that management control plays in handling security considerations? Will raising the limit of FDI from 49 percent to 74 percent seriously impair the ability to manage security considerations? How much funds are required to grow the telecom infrastructure? How much of that can be raised from within the country, and how much should be raised from outside? What are the costs of capital raised from India, and how do they compare with that raised from abroad?

A logical and clear answer can emerge only if all these are considered. Without that, we have a constantly rolling plan for FDI limits. Security considerations have been raised earlier and will be raised again in the future, unless clear answers start emerging. But, uncertainty certainly slows down progress.

Telecom is an essential and key infrastructure, and the ability to control it during national emergencies cannot be debated on. For instance, its role in keeping track of terrorism and other criminal activities is huge. Its capacity to be used as an espionage device is also high. But that is not the issue.

The issue is to what extent does foreign ownership influence these activities? And to what extent can legal and other provisions create deterrents? Many security glitches occur through manpower spread across the organization, and therefore, top management does not play a role in it. It does, of course, play a major role in cooperating with the law and intelligence agencies in ensuring that it follows specified security processes, and in times of need, provides the required assistance. These are issues that can be handled by many legal provisions and are done so, even today. To that extent just the ownership pattern may not be a huge security risk. A lack of checks and processes is a far bigger risk that can happen in any company—Indian or international.

Which brings up the financial issue? As per one estimate, the telecom sector has got FDI worth $2–2.5 billion so far. The FDI approved as per data from the Ministry of Communications’ is about $ 1 billion. While there is a wide difference between these numbers, both of them are very small as compared to the Ministry’s estimates of $69 billion investment required by 2010. Raising such a huge amount without investment from abroad will not be possible. So, the answer is very clear. Either, we make do with less money and less infrastructure, or we need to encourage investment by all means that do not impinge on national security.

It is also interesting to note that many investors in telecom have walked out of India in the last few years—British Telecom, Telecom Italia, Telstra, Swiss Telecom, Alltel Corp, Bell Atlantic, Bell Canada, Shinwatra, Bezeq, and Telekom Malaysia. They did not go because the permitted investment limits did not suit them. They went because they were not comfortable with the overall market size and the constantly changing policies and uncertainties.

Hence, some interesting facts emerge here.

• We need FDI and in large dollops
• Security issues are critical and answers have to be found quickly
• Most security issues can be managed by proper legislation and controls. Nevertheless, if the cap has to be kept at 49 percent, it should be stated so clearly
• A strong undercurrent of commercial and competitive concerns is taking away the stated importance of security. This has to change
• The current speed is not good enough. Something that should be going on a fast track is actually on a slow one.

Shyam Malhotra,  editor-in-chief,  VOICE&DATA