DoT to seek legal opinion on spectrum mortgage by telcos

The Department of Telecommunications (DoT) plans to soon seek legal opinion on whether telecom companies could be allowed to mortgage spectrum and raise funds from Indian financial lending institutions.

It was preparing a note for the law and finance ministries and would seek their opinion before the next meeting of an empowered group of ministers (EGoM), scheduled towards the end of the month, a senior DoT official told Business Standard.

The Telecom Commission, DoT’s highest policy making body, has already given an in-principle approval to the proposal, mooted by the Telecom Regulatory Authority of India (Trai) in its recommendations on spectrum auction, subject to legal and financial examination.

The Reserve Bank of India will also examine the proposal. “The issue will be taken up on a priority basis, as it needs to be decided before the finalisation of auction guidelines and issuance of notice inviting applications,” the official said.

The telecom industry is reeling under the pressure of intense competition, low tariffs and mounting debts. According to information available, the industry has a debt of more than Rs 275,000 crore.

“Mortgage of spectrum will no doubt help telecom firms to raise money easily, but it has to be looked at from various angles, especially from legal, before giving an approval,” another DoT official said.

The telecom regulator said in its recommendations on April 23 that telecom companies might be allowed to mortgage spectrum to a registered Indian financial institution against borrowings. It, however, said that in the event of default of the liability, the financial institution might auction the airwaves under the supervision of DoT and all proceeds in excess of the liability would be remitted to the government.

The EGoM is mandated to take final decisions on all auction-related issues. The main contentious issue of reserve price for auction will also be decided at the next meeting. At the first meeting, the group of ministers cleared the proposal for auction of 10 MHz of spectrum in eight blocks.

According to a Supreme Court order, the 2G spectrum auction has to be conducted by August 31, following the cancellation of 122 licences issued in January 2008.