The Supreme Court of India is poised to deliver a landmark judgment that will clarify whether telecom spectrum, considered a national resource, can be liquidated under the Insolvency and Bankruptcy Code (IBC) to help lenders recover their dues from bankrupt telecommunications companies.
The Spectrum Ownership Battle
On November 13, the Supreme Court reserved its order regarding how spectrum held by Aircel and Reliance Communications (RCom) should be treated during their insolvency proceedings. This decision carries significant implications for lenders, the government, and the future of India's defunct telecom operators.
Telecom spectrum represents the invisible radio frequencies that wireless devices use to transmit signals. The government auctions these airwaves to companies to provide mobile and internet services, making them the backbone of the telecom industry. Banks typically use these airwaves as security against loans extended to telecom companies.
The Stakes for Different Stakeholders
Three major telecom companies – Aircel, RCom, and Videocon – collapsed between 2018 and 2019, leaving behind unpaid statutory dues exceeding ₹40,000 crore. The Department of Telecommunications (DoT) maintains that spectrum is a national asset leased by the government and cannot be transferred to third parties unless all statutory dues are cleared.
However, as an operational creditor, the telecom department has recovered minimal amounts. In Aircel's case, operational creditors including DoT received only ₹28.50 crore – merely 0.16% of the ₹17,462 crore they had claimed under the resolution plan approved in June 2020.
Banking Sector's Position
State Bank of India, having exposure of ₹12,000 crore to both RCom and Aircel, has argued before the Supreme Court that telecom spectrum should be considered part of the insolvency process and sold to recover dues. The bank contends that spectrum represents an intangible asset that can be monetized to recover outstanding loans.
When RCom declared bankruptcy in 2019, more than 53 financial lenders had raised claims totaling approximately ₹57,382 crore. Other lenders to Aircel and its units include Bank of Baroda, Punjab National Bank, China Development Bank Corp, and Canara Bank.
Impact on Asset Reconstruction Companies
UV Asset Reconstruction Co Ltd (UVARCL), which won bids for defunct telcos Aircel and RCom along with its unit Reliance Telecom, faces significant challenges. Financial creditors who claimed dues of ₹58,795 crore from Aircel and its entities were to receive ₹6,630 crore under UVARCL's resolution plan, representing a substantial 89% haircut.
UVARCL had initially estimated generating ₹800-1,300 crore by selling Aircel's spectrum in the 1,800 MHz and 2,100 MHz bands. However, these plans remain uncertain given the telecom department's firm stance that airwaves are only leased, not owned, by telecom companies.
The prolonged resolution process threatens to degrade the quality of the telecom firms' assets, potentially leaving all stakeholders at a disadvantage if the issue isn't resolved promptly.
Spectrum Auction Landscape
The government's spectrum auction schedule has experienced disruptions following September 2021 reforms that proposed annual auctions. While 5G spectrum auctions occurred in July 2022, no auctions took place in 2023. The 2024 auction in June generated ₹11,340.78 crore – the third-lowest amount since competitive bidding began in 2010.
Reports suggest the government is unlikely to conduct spectrum auctions in 2025, as India's three major telecom operators show limited interest in acquiring additional spectrum after substantial investments in previous auctions.
The Supreme Court's forthcoming decision will ultimately determine whether lenders can access spectrum value to recover their massive exposures or if the government's position as trustee of this national resource will prevail.
