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FinMin: Telcos can now mortgage spectrum

The Telecom Commission had considered the proposal and had sought the RBI and finance ministry’s views on the subject.

Written by Anandita Singh Mankotia | New Delhi |
June 13, 2012 1:02:02 am

Ahead of the auction of 2G spectrum,the Reserve Bank of India (RBI) and the department of financial services (DFS) have approved the Telecom Regulatory Authority of India’s proposal to allow mobile operators to mortgage spectrum with banks and financial institutions to raise funds.

The approval comes with a set of conditions insisted upon by the RBI and agreed to by the DFS,which now the department of telecommunications (DoT) would have to incorporate in the tripartite agreement that is entered into by the licensor (the government),licensee (private operators) and the lender (bank or financial institution). Financial services secretary DK Mittal has written to the DoT secretary R Chandrasekhar about the changes to be made in the agreement.

In its spectrum pricing recommendations,as an offset for the high reserve price,Trai had suggested that operators be allowed to mortgage spectrum to raise funds. The Telecom Commission had considered the proposal and had sought the RBI and finance ministry’s views on the subject.

There already is an agreement between the three parties but it does not give the lenders the right to take over the assets of the operators in the event of a default.

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In the case of making spectrum a tangible security,the RBI has said that in case of default by the borrower,“The bank should have the unfettered right to sell,transfer,assign,exchange or otherwise dispose of the spectrum free of any restraining conditions.” The lender’s interest would have to be protected even in the case of force majeure. Another change to be made in the tripartite agreement is that in case of cancellation/revocation/voluntary surrender of licence,the title and right to spectrum would be with the lender. There shall also be a credible valuation methodology for valuing spectrum for the purpose of treating it as security.

A robust methodology also needs to be formulated for finding the market price of spectrum together with a margin that needs to be laid down to take care of the downward fluctuations in prices of spectrum,the RBI has said.

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