Banks get spectrum rights till licence ends

Banks that lend to telecom companies,with spectrum as collateral,will possess the right of spectrum till the licence period ends

Written by Mihir Mishra | New Delhi | Published:September 14, 2012 12:40 am

Banks that lend to telecom companies,with spectrum as collateral,will possess the right of spectrum till the licence period ends.

The Telecom Regulatory Authority of India (Trai) is of the view that banks cannot own the spectrum beyond the licence period.

“If a telecom company shuts shop on the fifth year of the 20-year licence period,the banks can sell the spectrum only for the remaining 15 year licence period. After the end of the licence period the spectrum will go back to the government and will be auctioned again,” said a government official in the know.

To ensure funds for telecom companies that have to participate in the 2G spectrum auction in November,the government had in June approved a proposal to allow mobile phone companies to mortgage airwaves.

Banks were allowed to sell airwaves in the event of a default or cancellation of mobile licence. Banks will enjoy the rights to sell,transfer,assign,exchange and dispose off the airwaves. The sale procedure will be carried out by the Department of Telecommunications (DoT).

Analysts,however,feel that the banks already will take a lot of risks by keeping the spectrum as collateral and adding such conditions will only make it difficult for telecom companies to get 100 per cent funding.

“There needs to be clarity on this issue on what amount of money will the banks be able to get back in case of a telecom company shutting shop. Unless that is resolved,the banks will be concerned,and 100 per cent funding is doubtful,” said Telecom Industry Leader at Ernst & Young,a global consultancy company.

The government has finalised Rs 14,000 crore as the minimum price for 5 Mhz spectrum for GSM services,and Rs 18,200 crore for 5 Mhz spectrum for CDMA services. Telecom firms are already estimated to have a debt of around Rs 300,000 crore and will find it difficult to arrange funds to participate in the auctions.

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