MUMBAI (Bloomberg) — India's telecommunications regulator recommended overseas holdings in Internet service providers be limited to 74 percent, matching the rules for other phone businesses and adding a layer of security.The Telecom Regulatory Authority of India also proposed levying licence and entry fees for internet companies, Nripendra Misra, chairman of the regulator, told reporters in New Delhi yesterday. Existing companies should pay an annual license fee of 6 percent of their yearly revenue and new entrants an entry fee of as much as 2 million rupees ($49,000) depending on the type of licence, he said.

"The principle in the telecommunications sector is that 74 percent foreign direct investment is permitted," Misra said. "This is a very reasonable standard of liberalisation. We'll ensure" the internet providers are at par, he said.

The regulator also suggested internet providers be allowed to offer telephone services via the internet without applying for any additional licence. The usage of any device capable of making such calls would be allowed, removing the earlier restriction of using only desktop computers.

India, the world's fastest growing wireless services market, charged no entry and licence fees from internet providers under a policy that came into effect in 1998. Overseas companies could also own all of an Internet provider. Of the 700 companies that acquired licenses, only 135 exist, Misra said.

"This indicates a free-ride is counter-productive," Misra said, adding companies would be given two years to reduce their overseas ownership to the limit allowed.

There are about 40 Internet providers in India fully held overseas, although they all had limited operations, said S.K. Gupta, adviser to the Telecom Regulatory Authority of India. He did not name any such company.

Internet users in India are expected to climb to 50 million in the next three years from less than 9 million as companies such as state-run Bharat Sanchar Nigam Ltd. and Bharti Airtel Ltd. roll out nationwide broadband services, Misra said.