The year 2020 began on shaky ground for the telecom sector. While telcos’ total debt stood at a whopping Rs 5 trillion, liquidity remained a cause for concern. On top of this was the burden of adjusted gross revenue (AGR) liabilities. Since the financial position of the telcos was quite volatile and network investments in newer technologies seemed unlikely, industry experts felt that foreign investors would be wary of investing in the sector, which was once the poster boy for foreign investments. However, the reality turned out to be quite the opposite, with the telecom sector attracting substantial investments from top-notch global investors through the year. In fact, the onset of Covid-19, which adversely impacted investor sentiment in other sectors, proved to be a catalyst for the telecom space in terms of both foreign investments and industry growth.

Key attractions for foreign investors

Favourable policy measures

The government played a key role in attracting foreign investments to the sector. In early 2020, the foreign direct investment (FDI) limit in the telecom sector was increased to 100 per cent from 74 per cent earlier. While 49 per cent of this would be through the automatic route, the rest would be done after approval by the Foreign Investment Promotion Board (FIPB). In fact, telecom remained among the top five sectors in terms of attracting FDI and received investments to the tune of $4.44 billion during fiscal year 2020. In another development, the Department of Telecommunications (DoT) approved Bharti Airtel’s request to increase the limit of foreign investment to 100 per cent of the paid-up capital of the company. Apart from the cellular and mobile segments, the satellite communications space saw some foreign investment activity. In order to permit FDI in the space sector, the Department of Space has started working on a policy framework and is expected to allow foreign firms to engage in a host of space-related activities.

Extension in AGR payment timelines

Another key development that has reinstated investor confidence in the sector is the Supreme Court’s order to grant telcos a 10-year timeline to pay outstanding AGR dues. Telcos can now make payments in annual instalments till March 2031, after making a 10 per cent upfront payment by March 2021. Through this order, the Supreme Court has eased Airtel’s immediate cash position, while giving Vodafone Idea Limited some more time to put its house in order. Further, the staggered payment schedule will provide telcos a much-needed respite on the cash flow front in the near term, while giving them some headroom for network investments, thereby enhancing investor confidence.

Covid-19 – A catalyst at work

The pandemic has acted as an unexpected catalyst for promoting digital expansion. Telecom companies, which have been the building blocks of 4G connectivity, home broadband, security and collaboration, emerged as the biggest enablers of social engagement amidst this crisis. During this pe-riod, India has experienced a significant up-tick in remote working solutions, digital payments, e-commerce activity and the adoption of online tools. These trends are expected to continue and become the new normal in the post-Covid era. All this has brought telcos and their treasure trove of user data into the limelight and it can prove to be a gold mine for technology companies. With India yet to tap the full potential of digital opportunity, foreign investors are eager to invest here.

India’s attractive digital footprint

In the past couple of years, the country’s growing digital footprint has attracted significant investor interest. The  digital ecosystem is evolving rapidly owing to factors such as a growing number of internet users (over 600 million), a fast growing e-commerce ecosystem (30 per cent annual growth), and a deep payments network (about 1.5 billion transactions per month). Further, the country’s citizens have exhibited a stunning appetite for data services and digital applications.

According to the recently released Ericsson Mobility Report, the average monthly mobile data usage per smartphone continues to show robust growth in the India region. As per the report, the average traffic per smartphone user in India has increased from 13.5 GB per month in 2019 to 15.7 GB per month in 2020. Ericsson predicts that the average traffic per smartphone would increase to around 37 GB per month in 2026. Moreover, the roll-out of 5G networks would expand the horizon of digital opportunities. As per Ericsson, India is estimated to have around 350 million 5G subscriptions by 2026, and 5G would help Indian operators garner revenues to the tune of $17 billion by 2030.

Net, net, the expanding digital footprint coupled with the opportunities represented by the evolving 5G ecosystem can help foreign tech giants as well as investors to gain substantial benefits in the times to come. Besides, the rising anti-China sentiment across the world could be a reason for investors to look for opportunities in India – the next big digital destination.

Key foreign investments during 2020

The inflow of foreign funds into the sector began in January 2020 with Bharti Airtel raising $3 billion through a combination of qualified institutional placements (QIPs) and foreign currency convertible bonds (FCCBs). The fundraising exercise marked the largest dual tranche equity and FCCB offering in Asia Pacific. About 15 global investors, including Warburg Pincus, Fidelity, Blackrock, Goldman Sachs, Lambard Odier, Citigroup, Schoder, Segantii Capital, Barclays, JP Morgan, UBS and BNP Paribas invested in the QIPs.

Vodafone Idea Limited too received $200 million from its promoter Vodafone Group Plc as liquidity support under the terms of the contingent liability mechanism (CLM) between the Vodafone Group and Vodafone Idea. While the amount was due in September 2020, it was released earlier to provide Vodafone Idea with liquidity to manage its operations and network expansion capability especially at the time of increased demand during Covid-19.

Jio garnered the most foreign funds among operators. During 2020, Jio Platforms, a three-and-a-half-year-old tech firm owned by Reliance Industries Limited (RIL), secured investments from leading global investors. The first tranche of investments was received in April 2020 from Facebook, when the social networking giant invested Rs 435.74 billion to acquire a 9.9 per cent stake. The deal marked the largest investment for a minority stake by a technology company anywhere in the world and the largest FDI in the technology domain in India. Since then, Jio Platforms has attracted investments of around Rs 1.18 trillion from marquee international investors such as Google, Intel Capital, Qualcomm Ventures, L Catterton, Silver Lake, Vista Equity Partners, General Atlantic, KKR, Mubadala, ADIA, TPG and the Public Investment Fund.

Meanwhile, in the infrastructure space, the government recently approved an FDI infusion worth Rs 24.8 billion by ATC Asia Pacific for purchasing about 12 per cent stock of ATC Telecom.

A few red flags

All these investments from top-notch global investors will undoubtedly help shape the future of India’s fledgling digital space and facilitate wide-scale digital adoption in the consumer and business-to-business (B2B) space. However, industry analysts are concerned about the unfair market competition, breach of data privacy and net neutrality violation that these investments may lead to. While these investments signal the dawn of a new digital India, it is critical to ensure that data sovereignty is not compromised, especially when there is a risk of leakage of Indian data to overseas firms.

Collaboration is key

Considering the issues highlighted above, companies receiving foreign investments should ensure that India’s digital privacy and security is not compromised. Since the country are yet to finalise its personal data protection law, policymakers can consider these aspects while formulating it. The most ideal solution is to create a collaborative framework that allows foreign investors to tap into the world’s fastest growing digital market while enabling domestic firms to leverage the global experience of leading companies.