Weekly Wrap: Why I think spectrum licences should never be a financial asset

Last month, the Indian Supreme Court ruled that spectrum licences cannot be sold or transferred by companies under the country’s insolvency and bankruptcy code.

The case relates to proceedings of Reliance Communications (RCom) and Aircel, two insolvent mobile operators whose lenders had sought to monetise spectrum licences as a way of recovering debts.

The court ruled that radio spectrum assigned to operators cannot form part of an insolvency estate because licensees do not own the frequencies. A company may treat a licence as an intangible asset on its balance sheet but this does not represent “ownership”.

Furthermore, the court ruled: “The grant of spectrum under a licence does not effect a transfer of property or title. It confers only a limited, conditional and revocable privilege to use spectrum, subject to statutory requirements, licence conditions and overriding public interest.”

Spectrum trading is permitted, although only with the consent of the state and after any unpaid dues owed by the licence holder are paid.

The court also reiterated a key principle: “We could demystify the legal challenge by first understanding spectrum as a material resource, precisely as what our Constitution refers to as the material resource of the community.”

RCom is appealing the verdict.

Having read the Indian court judgment, I was reminded of the proposal in the European Commission’s draft Digital Networks Act for indefinite spectrum licences. Supporters argue indefinite licences could transform spectrum into a more valuable financial asset that operators can use as collateral for loans. Indefinite licences make frequencies more of a company asset than a fixed-term assignment where the airwaves return to the state, typically after 20 years.

I see a number of problems with treating spectrum licences as a financial asset. What happens to the user if an operator defaults on a loan, for example? The potential risk to continuity of service seems obvious.

Plus, treating spectrum as a financial asset also undermines a key principle: that radio waves belong to the public. Frequencies are loaned to an individual licensee by us, the taxpayer, and in return, they provide us, the consumer, with a service. Meanwhile, the licensee has the opportunity to make a profit, which they traditionally have managed to do. That arrangement is not broken. Don’t change it.

If we do opt for indefinite licensing, India shows us where we might end up. But the country’s Supreme Court has reaffirmed where our true values should lie. The court said mobile operators “cannot be said to be the owners in possession of the spectrum but only in occupation of the right to use spectrum. Ownership of spectrum belongs to the Nation (people) with the Government only being its Trustee”.

Here’s what else PolicyTracker covered this week:

• A Finnish study of eCall has suggested that its impact is relatively limited in the country
• Cambodia’s regulator wants to assign mobile spectrum in the 700 MHz band next year, following a recent award of 3.5 GHz frequencies and a major restack of its 4G allocations
• Swiss mobile operators have warned the regulator that its upcoming auction could lock in spectrum imbalances
• Qualcomm is asking the US regulator for 40 MHz of spectrum in the 5.4 GHz band and 5 MHz in the 1.7 GHz band for a new emergency system called Sidelink
• We’ve looked into the ITU’s Bring into Use (BIU) rule for satellites and how a loophole has opened up a new market for BIU services