After a year of deregulation in the Telecommunications space allowing Foreign Direct Investments (FDI) from 49% to 74%, the Government has received only 2 applications while others complain that the security restrictions are too harsh for viable investment. AT&T, which has been granted National and International Long Distance is the only one approved while Hutchinson is mired in controversy over its investment sources for funding. Egypt-based Orascom bought a sizeable stake in Hutch International which is the parent of Hutch Essar and whether that investment is unconnected with Indian stakes in Essar is unclear.
Telecom companies world-over complain that Indian security restrictions are more stringent than terrorism-rife nations such as China , US, UK , Indonesia , Pakistan and Israel . However, this is a disingenuous argument for many reasons. Firstly, China , Pakistan , and Indonesia are not free democracies or economies. Secondly, the US, UK , and Israel are time-tested allies with well developed intelligence communities that frequently collaborate to stop terrorism. Thirdly, the US , UK , and Israel (with American help) can intercede any telephone conversation whether on optics, Internet Protocol (IP), or Satellite. Fourthly, China tightly controls what conversations or traffic go in and out of the nation and therefore always in the know. Fifthly, as the major perpetrator of terror, Pakistan is in control of what terrorists activities are going on.
India has unusual and complex security compulsions. Firstly, not being an ally of the US or UK , it has no access to technologies or intelligence interceding. Secondly, situated in a bad neighborhood geographically, it is surrounded by terrorism based on religion, ideology, politics, and history. Thirdly, being a democratic nation, it is compelled to comply with transparency norms and does not have the privilege of controlling network traffic with impunity. Fourthly, as seen through several recent terrorist attacks (including the July 11 Mumbai incident) terrorists exploit mobile and IP networks to plan and coordinate activities and transfer funds. Fifthly, the terror networks span nations (Pakistan , Bangladesh and the United Arab Emirates) with whom India has limited friendly relationship or influence.
Therefore, to compare the Indian situation with others is akin to comparing the environment of a domesticated animal with that of an elephant. However, an inadvertent side effect is that investment in telecommunications is faltering, the growth of current mobile users from 100 million to 300 million by 2010 is under threat, investment opportunities for Indian companies in overseas projects (such as China’s Asia Netcom) is curtailed, and areas of cooperation in other sectors such as energy may be affected, and market access for Indian companies restricted.
Obviously, India cannot function in isolation and jeopardize its economy and forcibly leash its companies just as it cannot allow unbridled investment in critical sectors that can affect national security. National pro-business and pro-communists papers have been crying hoarse on withdrawal on restrictions on Huwawei Technologies, ZTE Corp, and sectoral restrictions on investment from some countries. Not only are these demands irresponsible, they are also short-sighted not looking at the bigger picture.
India has done its best by doing what is under its control of limiting sectoral investments and company-specific investments. However, the best may not be enough and it needs to do more. It should create economic intelligence on countries and companies, track movement of money actively to observe patterns, develop technologies whether in collaboration with the US or by itself on interceding traffic, and also legislate to make use of communications networks for criminal activity automatically punishable.
While there must be a healthy paranoia on security, India should also guard against drawing broad parallels as it has done with the Orascom-Hutch episode. Its argument that the Orascom investment is detrimental to India because of its presence in Pakistan and Bangladesh is fragile. For example, Telekom Malaysia with 49% investment in Spice Telecom and Luxembourg-based Millicom owning sizeable stake in Skycell have large markets in Pakistan and Bangladesh . Millicom even owns PakTel and Instaphone in Pakistan . In a modern world or roaming, it is not just enough to limit operators but need to look at features such as hidden caller-id, questionable routing, etc. It can also require telecom companies to provide subscriber name and address information on suspicious callers from abroad.