Date:08/02/2005 URL: http://www.thehindubusinessline.com/2005/02/08/stories/2005020800771700.htm

Back Call for FDI to make telecom systems at home

Vinson Kurian

Thiruvananthapuram , Feb. 7

"THE security hole in telecom FDI plan" argument may fail to connect if only for the fact that the domestic telecom sector has been living with one for quite sometime now.

Foreign telecom vendors are already performing system diagnosis in India from their own backyard facilities through dial-up or leased lines. This is made possible through outsourcing deals or otherwise, according to Mr Abraham Paul, Managing Partner and Chief Telecom Consultant with Future Groups based here.

These vendors routinely access the systems for diagnosis and for other engineering purposes. There is no greater danger with the FDI plan than the manner in which the country's systems have already been exposed to foreign vendor servicing. What is of concern now is only the extent to which this becomes entrenched.

The solution lies in diverting FDI to local manufacturing of telecom systems, instead of operational business, Mr Paul told Business Line. Especially since growth in the telecom sector can only be brought about with huge investment. A working group on the sector has assessed these investments at Rs 1.6 lakh crore during the 10th Plan.

While enhancing FDI in the telecom sector is welcome, there must be sufficient safeguards against any eventuality that might affect the domestic economy, compromise its security and trigger a rise cost of telecom service.

At present, most of the telecom systems are imported from countries, which, ironically, will be the source for much of the FDI that the sector is likely to attract. In effect, these countries will give with one hand and take away with the other. It is just as well that they give in kind with no attendant benefits but top up the earnings made with interest, incentives, profits and even a premium.

Another likely scenario emerging will be that, with the foreign partner lording it over, the Indian counterparts end up with no bargaining strength. Cost of the systems will also go up because competition by foreign vendors in the selling market will have vanished since most of these majority foreign partners will have direct or indirect interests in the selling companies.

There is also the possibility of the country being saddled with obsolete systems/technology. With fast changing technology, telecom investment projections always can go haywire due to the low life cycle period of telecom hardware, software and the middleware. This will entail bringing in fresh investment in every two to three years for upgrades/replacements and changeover to higher technology systems.

It is also not possible to develop and customise the externally manufactured systems exclusively for Indian needs. The hardware has limited life span; as for the software, the buyer will be required to pay through the nose just for the licence to use. It will not have the freedom to make any change, modifications or improvements therein.

Therefore, the best option will be to direct the FDI into manufacturing these systems within the country. It should also be made mandatory for the foreign telecom manufacturer to transfer the requisite technology to the Indian counterpart. Perhaps, it would be beneficial to look at what China has done in this field in the recent past, Mr Paul said.