Indian spectrum could be used as collateral for loans

Indian spectrum could be used as collateral for loans

India’s finance ministry has put forward a series of proposals to generate some much-needed credit for the country’s telecoms sector.

All spectrum in India is owned by the government. It is leased to operators on a 20-year contract, with the condition that it will be returned to the government afterwards.

However, telecoms companies in India have been struggling to raise credit, due in part to slow growth and poor financial performance by Indian operators. The telecoms minister Kapil Sibal recently asked the Indian prime minister and finance minister to intervene to encourage the banks to start lending to telecoms companies again.

The finance ministry has put forward a number of proposals to ease the situation.

The main proposal is that spectrum should be used as collateral, allowing banks to seize spectrum from operators if they default on bank loans. Spectrum could also be used as collateral if operators have their mobile licence revoked. Several telecoms operators in India are in danger of losing their permits for failing to meeting obligations, such as by failing to roll out their services in time.

These changes would effectively mean that the ownership of spectrum would over time be removed from the government.

Other proposals include liberalising merger and acquisition regulations so that “a reasonable number of efficient and strong financial players can emerge” and to allow operators to share spectrum.

These proposals are set against a background where the mobile spectrum is becoming an increasingly valuable asset to telecoms companies.

Last year, the Telecoms Regulatory Authority of India (TRAI) valued 2G spectrum as 35% higher than the price for 3G spectrum, drawing protest from established carriers.

Telecoms minister Sibal was appointed to his post in November 2010 and is in the process of overhauling India’s regulatory environment. For more on regulatory reform in India, see here.

Gift this article