US asks India to clarify FDI cap for internet services

April 9th, 2009 - 11:46 am ICT by IANS  

By Arun Kumar
Washington, April 9 (IANS) The United States has asked India to address its concerns about the process for modifying foreign direct investment (FDI) requirements for internet service, access to submarine cable systems and restrictions on encryption.

The concerns were expressed in its annual review of the operation and effectiveness of telecommunications trade agreements with various countries by the US Trade Representative (USTR) Ron Kirk’s office.

“Barriers to telecommunications services and equipment make it harder for the US to compete in the in the global marketplace, and harder for us to evolve efficient and innovative communications infrastructure here at home,” Kirk said announcing the results of the review.

In the case of India, US concerns related to problems with major suppliers, transparency and regulatory independence and issues affecting the telecommunications equipment trade.

Raising the issue of “a lack of transparency” in India’s process for modifying FDI requirements for Internet Service Providers (ISP), the review noted that India previously had allowed 100 percent foreign ownership of ISPs.

However, in 2007, the Telecom Regulatory Authority of India (TRAI), recommended a reduction in foreign ownership to 74 percent.

Although TRAI suggested that companies be given a grace period to come into compliance with the new ownership rules, the grace period has never been formalised by India, the review said.

As a result, many companies are uncertain as to their status in the market. They are also uncertain about whether or not they must seek new licenses under their new ownership structure, it said.

USTR urged India to clarify this issue as soon as possible, to afford greater regulatory certainty to companies already operating in India, and to comply with its GATS commitments to make such measures publicly available.

Suggesting that India’s restrictions on the use of strong encryption are “both confusing and detrimental to the security of companies operating in India”, it said USTR will engage India to seek ways to ensure telecommunication companies can effectively protect information, while also respecting any security concerns of the Indian government.

On access to Submarine Cable Systems, the review noted that in 2007 “India took the positive step of mandating non-discriminatory and reasonable access to the country’s cable landing stations.”

However, “the regulations mandating access do not go far enough to ensure the transparent and timely provision of services,” USTR said.

It urged India to commence a new public consultation process that will allow competitive carriers to formally voice their concerns, and allow the TRAI to make necessary changes to its rules.

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