DoT to frame separate exit policy for telecom sector3 min read . Updated: 03 Nov 2014, 11:49 PM IST
The policy will allow firms to leave the business without losing out on the value of the assets they created
New Delhi: The Department of Telecommunications (DoT) is looking at framing a separate exit policy for the country’s telecom sector that will allow companies to leave the business without losing out on the value of the assets that they have created, internal DoT documents show.
The aim is to do away with time-consuming regulatory approvals and remove the hurdles to the transfer of assets when a company is seeking to exit the sector by selling and transferring its assets.
The move is being seen as part of the government’s endeavour to make India’s telecom sector investor-friendly and enhance the ease of doing business in the country. As part of his 100-day agenda, since taking over as the communications minister in May, Ravi Shankar Prasad said building investor confidence was a key priority.
The government has already moved to clear a number of pending policy decisions including on the trading and sharing of spectrum and a graded penalty structure for telcos to enable rational fines for inadvertent violation of regulations.
The move to re-frame the exit policy comes in the wake of a deal between Bharti Airtel Ltd, which is acquiring Mumbai-based Loop Mobile’s assets in that city for around ₹ 700 crore, using a so-called slump sale market mechanism.
DoT has held back approval for the deal for the last six months over the fact that a slump sale is not part of the telecom policy and the only way to exit the business is by surrendering the telecom licence and spectrum.
A slump sale typically involves the transfer or sale of an entity for a lump sum, with no valuation assigned to individual assets and liabilities.
Loop is exiting the business mainly because it has been unable to scale up its business beyond the Mumbai operating area. The telco’s right to use its spectrum will expire by the end of this month; the company did not take part in the February auction of spectrum.
The Telecom Regulatory Authority of India (Trai) also rejected the deal on the grounds that a telco was not allowed to transfer its subscribers to another operator and had to instead offer the subscriber the option of mobile number portability (MNP).
Delays in securing approvals had led Loop CEO Sandip Basu to write to the government stating that non-approval would lead to losses for Indian banks that have extended financing to Loop, as the company does not have the financial ability to repay the loans.
DoT is now expected to approve the deal.
According to an internal DoT memo, reviewed by Mint, “as of now, only way available to the Licencee to exit the sector is by way of surrendering of Licence and spectrum".
“Today, transfer of business, slump sale is also a common market mechanism. Spectrum sharing and trading cannot be an answer to all exit policies. However, such valuations are beyond Licensor (DoT) jurisdiction and can be a source of creative accounting. Even with spectrum trading, the authorisations are not transferred," the note said.
The note explained the current complexities in the sector regulations make exiting as per current policy very difficult.
“Today, towers are shared by many and licences of all may not end on the same date," the note said. It added that on transfer of a licence, the licencee has to get all the necessary permissions again, which takes a number of months.
“With transfer of business, such permissions may be transferred within licence period," the note added.
DoT is also looking at easing the transfer of spectrum by a company among its subsidiaries without the latter having to pay the market price for the radio waves. Market price needs to be paid now in trading or transfer of spectrum.
Analysts say that there is no real need for a separate exit policy and existing policies could be tweaked to make them better.
“Personally I don’t think this will go far. The licence is a piece of paper with spectrum being the only thing of real value for the telco," said Mahesh Uppal, a telecom regulatory expert and director with consulting firm Com First India Pvt. Ltd.
“The licence gives the telco the right to use the spectrum. The real exit policy is one that allows the company to trade or surrender that spectrum or companies to merge or acquire another company. The current guidelines for trading or merger and acquisitions do not offer sufficient incentive for companies to trade spectrum or merge or acquire," Uppal added.
“The current rules are of no help. Once that happens, the rest will take care of itself."