In credible India

07 Feb 2012

The government has suggested that Indian mobile operators be allowed to borrow from the banks keeping spectrum as collateral. If an operator defaults or its license gets cancelled, the bank can confiscate the spectrum. India’s finance ministry has asked the telecom department to modify its policy to materialize the plan.

There are few points to ponder.

Spectrum is an intangible and indestructible atmospheric asset, which cannot be stored or transported anywhere. And it has no internationally recognized price tag either. Such unique asset is too complex to be treated as collateral. Banks expect collateral to be easily tradable for quick recovery of unpaid loans. India is yet to permit the trading of spectrum. Even if the authorities allow it, the bankers will hesitate.

Spectrum remains worthless until a commercial wireless network emits signal through it. Theoretically all equipment associated with a mobile network should be bundled with the spectrum as collateral. Otherwise, a defaulted operator’s spectrum license would end up catching dust as a worthless piece of paper in the bank’s vault.

Yet it will be difficult to cannibalize a defaulted company's mobile infrastructure and sell the MSC, BSC, BTS and other bits and pieces of secondhand hardware to recover the outstanding debt. Therefore, all customers of the defaulted mobile network should also be included in the list of collateralized assets.

The voice and data traffic being generated by the millions of Indian mobile subscribers is the only bankable asset that qualifies to be collateralized. In simple terms, the government of India should allow the mobile outfits to merge with or be acquired by other entities.

The good news is the finance ministry has also suggested “the department of telecom... allow spectrum sharing by telecom operators, and make amendments aimed at facilitating consolidation in the crowded mobile sector.”

But the ministry of finance should focus on its own list of tasks. India’s GSM and CDMA camps are seeking “infrastructure status” from the finance ministry. Apart from income tax exemptions, the status of infrastructure will give them easy access to domestic credit and borrowing from overseas. Concerned officials have assured that “the Finance Ministry would look into their demands.”

Snake-charmers and black magic used to symbolize India until the recent past. Young talents and visionary entrepreneurs have engineered the country’s meteoric rise to modernity. The government of India should match the pace. Otherwise its credibility as an emerging global power may face challenge.

The nation's tourism ministry runs a series of impressive television adverts under the theme of “Incredible India” to promote the diverse magnificence of its people, culture and landscape. Can the government plan a similar campaign titled “In credible India,” portraying predictable policy and regulations with the rule of law for domestic and foreign investors?

Related content

No Comments Yet! Be the first to share what you think!