Telecommunications

The webinar, ‘Investing in India – Telecommunications, hosted by Khaitan & Co, provided foreign investors and their advisors an overview of the Indian telecommunications sector from an investor perspective, covering sector history, regulatory framework, FDI, the Telecommunications Act, 2023, investment opportunities, and principal risks.

The session was moderated by Shobhit Chandra (Counsel, Telecom, Media and Technology) and Data Privacy practice groups, which was led by Partners, Harsh Walia and Abhinav Chandan.   

Please see below a summary of the key points discussed in the webinar. Views expressed in the webinar are those of individual panel members and not those of Khaitan & Co. and are subject to the disclaimer set out in the webinar recording.

The recording can be viewed here: Telecommunications | Investing in India

Discussion

India’s telecommunications sector is once again emerging as a compelling destination for foreign investment. After a long period marked by policy shocks, litigation, financial distress and regulatory uncertainty, the sector is now entering a more stable and reform-oriented phase. Its importance has also expanded significantly. Telecommunications is no longer limited to voice services and basic connectivity; it now forms the backbone of digital infrastructure, cloud computing, AI-led services, enterprise communications, IoT ecosystems, satellite connectivity and data-intensive applications. For investors, this has transformed telecom from a narrow-regulated utility into a strategic gateway to India’s wider digital economy.

The significance of this opportunity is reinforced by scale. India remains one of the largest telecom markets in the world, with a vast subscriber base (approx. 1.2 billion), rapidly increasing per-user data consumption and one of the fastest 5G rollouts globally. Public initiatives such as Digital India and BharatNet continue to support broadband expansion and rural connectivity, while India’s ambition to become a global centre for digital services and technology manufacturing further strengthens the relevance of the telecom sector. These trends collectively make telecommunications an essential enabler of economic growth and a critical component of long-term infrastructure planning.

At the same time, investment in Indian telecom must be understood through the lens of regulation. The sector operates within a layered legal and institutional framework involving the Department of Telecommunications, the Telecom Regulatory Authority of India, specialised spectrum and technical authorities, and a distinct national security overlay. In practical terms, telecom investments cannot be approached like ordinary corporate transactions. Licensing or authorisation requirements, spectrum permissions, technical approvals, security obligations, and compliance with related data and cyber laws all have a direct bearing on transaction timelines, diligence scope and ongoing operational viability.

One of the strongest positive features of the market is the foreign investment regime. Over time, India has substantially liberalised foreign direct investment in telecom services, and 100% FDI is now permitted under the automatic route. This has made telecom one of the more accessible regulated sectors for overseas investors. The principal caveat relates to investments connected with jurisdictions sharing land borders with India, where government approval and enhanced ownership scrutiny may still apply. In most other cases, however, the FDI framework is relatively open and investor friendly. The key issue is therefore not whether foreign investment is permitted, but whether proposed ownership structures and beneficial interest, and their interplay with geopolitical sensitivities create additional approval or compliance considerations.

The present investment case also becomes clearer when viewed against the history of the sector. India’s telecom industry was opened to private participation in the 1990s, but the early years were difficult. High licence fees and uncertain traffic assumptions made commercial viability challenging. The shift to a revenue-sharing model was a major turning point and helped unlock rapid growth. In the years that followed, mobile telephony expanded at extraordinary speed and became one of the great growth stories of the Indian economy. That trajectory was later disrupted by major legal and regulatory events, most notably the 2G spectrum controversy and the Supreme Court’s cancellation of licences, followed by the AGR litigation that imposed very substantial liabilities on operators. These developments significantly damaged investor confidence and contributed to prolonged financial stress in the industry.

The sector today is markedly different. The market has consolidated into a smaller number of principal operators, making the competitive environment easier to understand and assess. This is important from an investment perspective because clarity around market structure often translates into greater confidence in valuation, strategy and exit planning. At the same time, telecom’s strategic role has broadened beyond consumer mobility. It now supports digital commerce, OTT ecosystems, hyperscale infrastructure, data centre capacity, AI deployment, enterprise technology platforms and national connectivity planning. As a result, investors are no longer limited to traditional operator-level opportunities. The sector now offers multiple entry points across infrastructure, platforms and specialised services.

A rejig of the regulatory framework is also forthcoming. The Telecommunications Act, 2023 (2023 Act) is central to this changing landscape. Replacing the Indian Telegraph Act, 1885, the new legislation aims to be a meaningful attempt to modernise the legal architecture for a contemporary communications environment. The shift from a licensing model to an authorisation framework is significant because it signals a move towards a more structured, technology-neutral and predictable approach. Under the earlier regime, many modern service categories did not fit neatly within existing legal classifications, creating uncertainty around cloud telephony, hosted communications, internet exchange services, IoT, enterprise networks and private connectivity models. The new framework is intended to provide a more coherent regulatory home for these activities and to reduce fragmentation across multiple instruments and outdated conditions.

Another important feature of the 2023 Act is its effort to improve practical deployment conditions, particularly through ‘Right of Way’ reforms. Delays and inconsistencies in permissions for fibre deployment and tower installation have long been a major barrier to rollout. A more uniform framework for rights of way can improve implementation efficiency and reduce localised friction, which is especially important for infrastructure-heavy investments. Although much will depend on subordinate rules and actual administration, the new legislation is widely seen as a better starting point for both strategic and financial investors.

From an opportunity perspective, telecom infrastructure stands out as the most attractive and immediate investment theme. Towers, fibre networks and data centres offer a combination of strong demand, relatively clearer regulatory treatment and asset-backed returns. Fibre, in particular, appears significantly under-penetrated relative to future demand, especially in light of 5G expansion, rural broadband needs and AI-related data requirements. Data centres are also becoming a major focus area as India develops into a larger hub for hyperscale and cloud infrastructure. These infrastructure segments provide exposure to telecom growth while offering some insulation from the volatility associated with retail telecom operations.

Beyond core infrastructure, enterprise-facing communications services represent another important growth area. Cloud communications platforms, hosted contact centres and similar services are increasingly relevant in a digital economy where businesses rely on integrated voice, data and customer engagement tools. Historically, these models have existed in a regulatory grey zone, but the new framework is expected to offer greater recognition and clarity. That clarity is valuable not only from a compliance perspective, but also for financing, transaction structuring and long-term commercial planning.

Private networks and captive 5G deployments also present a promising frontier. Enterprises in sectors such as manufacturing, logistics, ports, airports and mining increasingly require dedicated, high-capacity and low-latency communications infrastructure for operational purposes. A framework that permits enterprises to build or access private networks opens up significant possibilities for industrial digitisation and sector-specific connectivity solutions. Similarly, IoT and machine-to-machine communications are becoming more important across sectors such as automotive, agriculture, logistics and smart infrastructure, making this an area of growing strategic relevance.

Satellite communications and submarine cables are among the most dynamic new opportunities. Satellite connectivity has strong potential in rural and remote areas, as well as in mobility use cases such as aviation, maritime and railways. It is also relevant for strategic sectors including defence, disaster management and agricultural monitoring. Submarine cables, meanwhile, are critical to meeting India’s rising internet traffic requirements and supporting low-latency use cases in finance, cloud computing and data-intensive services. Investments may arise not only in cable systems themselves, but also in cable landing stations, colocation facilities and adjacent digital infrastructure. These are capital-intensive opportunities that can be especially attractive to long-term infrastructure investors.

However, the sector’s risks remain real and should be treated as integral to the investment thesis. National security is the most important. Telecommunications is viewed as critical infrastructure, and the legal framework gives the government extensive powers relating to interception, suspension of services, temporary control of networks and equipment-related restrictions. The trusted-source regime can also have major commercial consequences, particularly where networks rely on vendors or equipment that become sensitive from a regulatory perspective. Compliance complexity remains another major factor. Even with a streamlined statutory framework, telecom businesses may still be subject to obligations around audits, lawful interception, subscriber verification, data governance and cybersecurity. In addition, the implementation of the 2023 Act is still evolving, and investors will need to monitor future rules relating to authorisation categories, fees, spectrum use, migration of existing licences and security conditions.

Against this backdrop, the most prudent investment approach is selective and structured. Infrastructure remains the clearest entry point for many financial investors, including private equity, infrastructure funds and sovereign wealth funds. Strategic investors may find additional value in partnerships, technology licensing models and specialised service offerings rather than direct ownership of licensed entities. In all cases, telecom-specific diligence is critical. Standard corporate diligence is not enough in a sector where valuation and operational continuity can be heavily influenced by licence scope, spectrum rights, equipment approvals, security architecture and regulatory interpretation.

Conclusion

The broader conclusion is that India’s telecom sector has entered a more investible phase, but not a simplified one. The market offers scale, sustained demand, policy momentum and multiple investment pathways across core and emerging categories. It also demands careful navigation of regulation, security and implementation risk. For investors willing to take a long-term view and build compliance and regulatory strategy into their operating model from the outset, the sector offers substantial opportunity. Telecom in India is therefore best understood not merely as a regulated service industry, but as foundational infrastructure for the country’s next stage of digital growth.

The content of this document does not necessarily reflect the views / position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up, please contact Khaitan & Co at editors@khaitanco.com.