The Telecom Regulatory Board of India (TRAI) has issued fresh recommendations on increasing foreign direct investment (FDI) limit for the Broadcasting sector - overall, the proposals are positive and will help attract capital. The key guiding factor for TRAI has been to maintain a level playing field for various players in Media - FDI limit for distribution services has been raised to 74 percent for Direct to Home (DTH), IPTV & multiple-system operators (MSOs). As regards content services for news channels, TRAI has recommended maintaining status quo at 26 percent FDI limit and for Radio broadcasting a marginal increase to 26 percent from 20 percent versus 49 percent recommendation for each in '08, keeping in line with Print. We expect the recent recommendations in distribution services to be implemented as they are in line with regulations for telcos. Also, for calculating FDI stake the principle of 'ownership and control' will be applicable as against ‘direct and indirect ownership of control on a pro rata basis' earlier. Oil sector reforms showcase the Government's keenness for sectoral reforms, but the rise in FDI limit for News and Radio was lower than the earlier recommendation, which was disappointing.

• New proposals allow direct control. New recommendations will determine the FDI limit, both for ownership and control against the existing norm of control. Under the existing norm, it was possible to divest 73-74 percent effectively without breaching 49 percent limit given that the control was still with Indian citizens or companies. New TRAI recommendations will allow companies to give control as well as ownership directly, enabling entry of more global players in the Indian DTH & cable services segment.
• GECs to gain from rising digitalisation. We expect fast-paced digitalisation for both DTH and digital cable if Indian broadcasting carriage services are able to attract global players. This will lead to faster ramp-up in DTH revenues for Zee Entertainment, IBN18 and SUN TV.
• No Indian players within existing FDI cap. While it is true that global players have been reluctant in entering Broadcasting carriage services till date in spite of headroom till 49 percent , we expect the change in limit to 74 percent to be able to attract capital. At present, Dish TV's 11 percent stake is held by Apollo, Tata Sky's 15 percent by Newscorp and Sun Direct's 20 percent by Astro Malaysia

New recommendations allow direct control

New recommendations will determine the FDI limit, both for ownership and control against the existing norm of control. Under the existing norm, it was possible to divest 73-74 percent effectively without breaching 49 percent limit given that the control was still with Indian citizens or companies. New TRAI recommendations will allow companies to give control as well as ownership directly, enabling entry of more global players in the Indian DTH and cable services segment. The new recommendations will also enable foreign players to have more control in proportion to their ownership.

Under the existing limit and calculation structure, companies can create a holding company and an operating company under the ownership of the holding company and divest 49 percent of both to foreign investors, thereby transferring 74 percent effective stake with control in Indian hands. The new recommendations will enable a more transparent ownership and control of broadcasting companies within the prescribed limit and hence, attract capital.

The authors of this article are Vikash Mantri, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it ; and Satish Kothari, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

After the new ruling from the government, foreign investors play lead role in domestic broadcaster funding. Domestic broadcasting companies have become the pick of foreign investors having got government approvals to pump in Rs 850 crore in various firms. Rupert Murdoch's Star Group has accounted for nearly 88 percent of this amount, putting in Rs. 750 crore in its two allied media firms alone.

Foreign investments of over Rs. 600 crore await approvals for investments in print media firms like Hindustan Media Ventures and the Jagran Group, making the Indian media firms an investment destination for foreign investors.

While Star will invest Rs. 425 crore in regional media company Asianet Communications to fund its expansion plans in the regional entertainment channels, it will pump in Rs. 324.6 crore in DTH firm Tata Sky which will also lead to an increase in Star's stake in the third-largest DTH firm.

Star's investments of Rs. 425 crore in Asianet will be via its Mauritius-based subsidiary SVJ Holdings which will then pick up 23.65 percent in Asianet Communications Ltd (ACL). In 2008, Star had bought majority stake in ACL that broadcasts channels in Malayalam (Asianet, Asianet Plus), Kannada (Suvarna), and Telugu (Sitara). Star is expected to use the investments to further expand in the southern markets.

In Tata Sky, Star's investments will be through an Indian holding company called TS Investments, a joint venture between Star and Tata group. TS Investments will then pick up 20 percent stake in Tata Sky putting in Rs. 324.6 crore as the initial investments taking the overall foreign investments to nearly 40 percent, just 9 percent short of the 49 percent cap of foreign investments in the DTH sector.

The government also approved a proposal from Mumbai-based Valuable Media to receive around Rs 100 crore in foreign investment for expanding its activities in the digital distribution of cinema in the theatres using satellite-based technology.

However, the foreign investment promotion board of the government is still deliberating on the proposals of Jagran Media, the publishers of Hindi daily Dainik Jagran and Hindustan Media Ventures, the publishing arm of HT Media to attract combined investments of Rs 575 crore. While Jagran Media is looking at Rs 225 crore of foreign investments from private equity fund Blackstone Mauritius in its unlisted arm, Hindustan Media Ventures is seeking Rs 350 crore from various foreign investors including NRIs and FIIs among others.

The government has also held back its approval to a proposal from INX Media to allow New Silk Route, a private equity fund...