Two years on, EGoM still debating spectrum security
Such are the ways in which the government functions, it has been several years since banks have been asking for a clear policy on how to treat spectrum, but no guidelines have been formulated till date—indeed, one of the notes put up to the EGoM on telecom on the issue is an earlier EGoM decision, on July 12, 2012, on the matter. Given how several banks found themselves in trouble in 2012, when the Supreme Court cancelled the licences issued by the government in 2008, you would have thought there would be some urgency to resolve the matter, but clearly not.
To be sure, the matter is a bit unlike other tangible securities that are hypothecated to banks. Unlike a hypothecated piece of land that can be sold to anyone by a bank, the spectrum can only be sold to another telco; and if Telco B, to whom the spectrum is to be sold, already has reached the Trai-specified ceiling on spectrum ownership, the sale cannot take place. But this is really the bank’s problem, and applies to other tangible securities as well—should a bank desire to sell the shares of Company A to Company B, there are Sebi and Competition Commission of India rules that need to be kept in mind.
There is also the issue of whether the free-market price has been paid for the spectrum being hypothecated, and therefore being sold. While this looks the most complicated, it is actually easily dealt with. For one, since the spectrum will be sold to a telco that is in business, the government will continue to get an annual share out of it, and so should not worry about whether a ‘market-price’ was paid for it or not. If this is not good enough, it can’t be too difficult to put a rule in place to deal with this. After all, in the case of a merger or an acquisition, there is a rule in place that deals with precisely such situations. Under these rules, the acquiring firm has to pay the department of telecommunications (DoT) a one-time regularisation charge, if you will, on the basis of the residual life of the spectrum. Assume the spectrum has a market value of R10,000 crore and the firm paid just R1,500 crore for it, and there are 15 years left of the licence period when it is to be sold by the bank to another telco. Since each year of the licence is valued at R500 crore, the residual value of the spectrum is R7,500 crore—so, whoever, buys the spectrum will have to pay a one-time fee of R6,000 crore to the DoT. There are various permutations of this approach that can be worked out, but it is inexcusable that no solution has been worked out as yet, given how fast the sector is growing and how much banking capital is exposed to it. It is important to keep in mind that any solution arrived at should specifically say there is no need for the bank to get DoT’s permission—for spectrum to be a tangible security, banks need to have unfettered rights over it.