Foreign investment in 3G mobile services

Foreign direct investment (FDI) in the telecommunications sector in India has experienced a substantial increase in the recent past and a further growth is expected following the auction of spectrum to support third generation (3G) mobile services.

The Revised Information Memorandum on Auction of 3G and broadband wireless access spectrum dated 23 October 2009 issued by the Department of Telecommunications (DoT) states that the following entities are eligible to bid for 3G spectrum: (i) any entity that holds a unified access service (UAS) or a cellular mobile telephone service (CMTS) licence; or (ii) any entity that (a) has previous experience of 3G telecommunication services and (b) provides an undertaking to obtain a UAS licence before commencing commercial operations either directly (if the bidder is an Indian company) or through an Indian nominee company in which it directly or indirectly holds at least a 26% equity interest.

Accordingly, an overseas telecommunications operator seeking to bid on 3G spectrum will need to have an existing joint venture (JV) entity in India that holds a UAS or a CMTS licence or form a JV entity in India which will obtain a UAS licence before commencing 3G operations. Any investment by an overseas operator in an Indian licensee company will be subject to certain foreign investment regulations and guidelines on mergers and acquisitions, which are briefly outlined below.

Juhi Singh is a partner at S&R Associates, a New Delhi-based law firm.