With an aim to provide a financial cushion to the debt-laden telecom operators bidding in the ongoing spectrum auction, the Department of Telecommunications (DoT) — a day before start of the auction process— issued a notification permitting mobile phone companies to mortgage spectrum, which would allow these operators to use the airwaves as collateral to raise funds from banks and financial institutions.
“…it has been decided by the competent authority to allow to keep the rights to use the access spectrum as security to obtain financial assistance from the lenders. This shall not only facilitate the financing of the telecom industry but also mitigate the stress of the banking sector while fulfilling the DoT’s mandate regarding the spectrum management,” the DoT notification, dated September 30, said.
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For the purpose of mortgaging airwaves with a financial institution, the DoT has also issued guidelines which mandate the signing of a tripartite agreement among any operator, a lender, and the department.
The idea to allow using of airwaves as a collateral was first raised in 2012 after the Supreme Court cancelled licences and spectrum allocations of operators, and banks became reluctant to lend to telecom companies without collateral. After the cancellation of licences by the apex court, the lenders were left without any assets to claim from telecom companies. While it was cleared back then by banking regulator RBI, and telecom sector regulator Trai in 2012, the DoT quashed the idea in January 2015 raising issues over control and valuation of the natural resource.
Previously, when spectrum was administratively allotted along with licences, operators would raise funds from banks and financial institutions by keeping these licences as collateral. But once the unified licence regime kicked in, spectrum was delinked from the licence and now it can be obtained by companies through either auction, liberalising their administratively allotted holding, or trading.
The industry, due to its infrastructure and spectrum costs, has been reeling under immense quantum of debt, which is to the tune of nearly Rs 3.80 lakh crore, and this liability is also creating pressure on the financial system of the country.
In 2013, before that year’s auction exercise, the Telecom Regulatory Authority of India (Trai), had recommended to the DoT that it “should take up the matter (of spectrum as collateral) with RBI before the proposed auction so as to ensure that commercial banks and other lending institutions are in a position to provide loans to the telecom companies for participation in the auction.”
The 2016 edition of the spectrum auction, which commenced on Saturday, is expected to receive a lukewarm response, according to industry experts, especially on account of high reserve prices in key frequencies. The government on the other hand has placed crucial bets on the auction to trim its fiscal deficit, with the finance ministry expecting a revenue of Rs 98,994 crore from communication services that includes proceeds from spectrum auction and other fees, according to the Union Budget of 2016-17.
The move to announce spectrum mortgage a day before the commencement of the auction seems to be the DoT’s push to financially facilitate operators to bid in order for the ministry to meet its budgetary target. Apart from this the Secretary of DoT JS Deepak also stated on Friday that post this auction, “if there is unsold spectrum, it means there is no demand for it… So we will harmonise spectrum purchased by operators in all bands including 1800 MHz and 2100 MHz so that we can make it contiguous and multiply its efficiency for operators. Only after harmonisation process is complete, will we think of the next auction”.