The FINANCIAL — Foreign telecom majors such as Australia's Telstra and Sweden's TeliaSonera AB 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.
According to Borsa Italiana – London Stock Exchange Group, 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, 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, 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.
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