Airwaves mortgaging to speed up 2G auction process

In a huge boost and relief for the telecom sector, the Reserve Bank of India and the Finance Ministry have agreed to consider spectrum a tangible asset which will now allow the cash-strapped telcos to mortgage airwaves to raise funds from banks and other financial institutions.

The telecom sector, over the last few months, has been crying hoarse that spectrum, the most crucial asset for any telecom network, should be treated as something that can be mortgaged and borrowing can be done against it.

The move will provide greater security to lenders and clear the air of uncertainty to some extent in the wake of cancellation of spectrum licences.

Also the RBI's approval to permit telecom companies to mortgage spectrum for future deals is crucial to the upcoming 2G auctions as the banks have been reluctant to extend loans to this fiercely competitive sector without any collateral. The banks' reluctance to extend loans has impacted the existing operators as well as the new ones, who are the most affected and are almost on their deathbed.

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[caption id="attachment_341954" align="alignleft" width="380" caption="The central government has said that spectrum will be seized by the lenders if the telecom company defaults or its mobile permits are cancelled. Reuters"][/caption]

Telcos had earlier warned that they would be unable to pay the minimum price prescribed by sector regulator Trai as banks had stopped lending to telecom companies after the 2G spectrum scam. However, the RBI has set certain conditions. The central government has said that spectrum will be seized by the lenders if the telecom company defaults or its mobile permits are cancelled.

"The bank should have the unfettered right to sell, transfer, assign, exchange or otherwise dispose of the spectrum free of any restraining conditions," RBI said in a note. The lender's interest would have to be protected even in the case of force majeure.

Other conditions put down by RBI include a robust methodology to discover the market price of spectrum and a margin to take care of downward fluctuations in prices and a credible valuation methodology to value spectrum reflecting the true realisable value of the airwaves, a Business Standard article said.

The finance ministry has endorsed the RBI stance and has asked the telecom department ( to expedite policy changes to allow spectrum to be used as collateral by lenders of telecom companies, saying this will 'boost the confidence' of banks and allow mobile phone companies to raise loans.

The Economic Times, quoting a DoT official, said the Empowered Group of Ministers on spectrum auction may consider the RBI's recommendation and approve the policy change permitting spectrum mortgage, in its next meeting later this month.

Reacting to the development, telecom stocks have been buzzing all morning. While Reliance Communication is up 2.17 percent, Tata Teleservices is up 3.19 percent.