RIL to use RComs fibre optics for 4G rollout

Written by fe Bureaus | New Delhi/Mumbai | Updated: Apr 3 2013, 06:53am hrs
For the first time after ending their non-compete agreement in May 2010, the Ambani brothers have joined hands in their business operations. On Tuesday Mukesh Ambanis Reliance Jio Infocomm, which has pan-India spectrum to offer broadband wireless access services, signed an agreement to pay a one-time R1,200 crore to use the optic fibre network of Reliance Communications owned by younger brother Anil Ambani. The move is in line with Mukesh Ambanis asset light approach in re-entering the telecom sector and lifts the sentiments at the debt-laden younger brothers Reliance Communications.

Reliance Jio sources clarified that there would be no equity participation by the company in RCom or its tower arm Reliance Infratel, though the company may in future enter into a tower sharing agreement on tenancy basis. Further, sources said that Reliance Jio, while entering into such agreement with RCom, would negotiate with other telecom operators as well as tower owners to share infrastructure on a rental basis. It would also build some of its own infrastructure in optical fibre cable (OFC) as well in towers. Any equity stake in either RCom or any of its affiliates or any other operator is totally ruled out today and in future, said an official in the know of developments.

Analysts see the move as a smart one by Reliance Jio, which is yet to start commercial operations. By entering into an agreement with RCom for using 120,000 km of inter-city OFC for a one-time charge of R1,200 crore, the company is paying R1 lakh per kilometre, which is cheaper than if it were to build its own network. Further, it gets ready infrastructure so it can look at starting its operations faster. Since RComs OFC network was set up by Mukesh Ambanis team when he owned the company then known as Reliance Infocomm, its architecture and usage is best known to them.

There are benefits for RCom as well from the deal. Though the amount of R1,200 crore would not do much to lighten the companys debt burden of R36,329 crore, it would certainly boost sentiments. At a later stage, Reliance Jio has signalled that it may enter into a separate agreement to use the OFC for intra-city as well, for which a separate rental would be payable. Further, at a future date when it enters into a tower sharing agreement with RCom, a new revenue stream would open for the the latter. Today, RCom has close to 50,000 towers but doesnt have any other tenant with the exit of Etisalat DB from the country. As part of the agreement, RCom would also get to use any OFC network built by Reliance Jio in future.

Precisely for this reason, the announcement saw RComs share closing up 10.86% at Rs 63.30 on Tuesday on the BSE, its highest in about two weeks. The stock rose as much as 17% in intra-day trading. Meanwhile, RIL closed up 2% at Rs 793.95.

The signing of the definitive agreement between the two brothers in the telecom space has ended the long speculation in a section of the media that Mukesh Ambani would buy a stake in either RCom or its tower arm Reliance Infratel. There were also speculation that Reliance Jio may enter into an exclusive tower sharing arrangement with Infratel.

Mukesh Ambani has been passionate about the telecom sector and entered it with huge fanfare in 2002-03. However, the estrangement between the brothers led to a demerger in 2005 which saw Reliance Infocomm pass on to Anil Ambani. A non-compete agreement between the two ensured that Mukesh didnt enter telecom while Anils attempts in 2008 to seal a deal with South African mobile operator MTN got scuttled when Mukesh threw the clause which vested the first right of refusal to him in case of any sell-off.

The brothers ended their non-compete agreement in May 2010 and in June that year Mukeshs Reliance Industries bought a 95% stake in Infotel Broadband, which was the only company to have bagged pan-India spectrum in 22 circles for providing BWA services by paying around Rs 13,000 crore. Subsequently, Mukesh outlined that he would follow an asset-light approach towards telecom with a range of partnerships with service providers as well as device makers and other stakeholders.

Later in December 2010 the two brothers got together at their hometown in Chorwad, Gujarat, to celebrate the 80th birth anniversary of their father Dhirubhai Ambani.

Though it is yet to start commercial operations, Reliance Jio received a boost recently when the government allowed companies like it which other had an internet service provider licence to pay Rs 1,651 crore and migrate to a unified licence under which it can provide voice services. The immediate advantage of the move would be that the company would be able to terminate calls made from a personal computer or similar device to mobile and landline phones.

Joining hands

*( Mukeshs Reliance Jio enters into pact with Anils Rcom

to use the latters 120,000 km OFC network for R1,200 crore

* Reliance Jio at a later stage may also rent towers from Anils Reliance Infratel, would enter into similar deals with other operators/tower owners also

* Reliance Jio has ruled out equity stake in Anils firms as well as in other telecom firms