In a major strategic partnership, Ambani brothers Mukesh and Anil — who lead mobile firms Reliance Jio and Reliance Communications, respectively — on Monday inked an agreement to share and trade spectrum in the 800 MHz band across 17 circles. Apart from sharing spectrum, Reliance Jio will acquire 33.75 MHz of spectrum from Reliance Com across nine of these circles. Although no financial details were disclosed, sources indicated Reliance Jio will pay Reliance Com close to R4,500 crore to acquire 33.75 MHz of spectrum in nine circles.
Reliance Jio currently has 800 MHz spectrum in 10 circles (5 MHz in nine and 3.75 MHz in one). Barring Uttar Pradesh (East), where it has 3.75 MHz, RJio has acquired spectrum from RCom in circles where it doesn’t own any. Following the deal, it will have 5 MHz spectrum in each circle through trades plus more via the sharing pact.
Similarly, after the sharing and trading, RCom will be left with 1.25 MHz of spectrum. This will ensure the company enters into intra-circle roaming pacts with RJio whereby it can provide 4G services to its subscribers across the circles.
This also explains why even in circles where RCom has 5 MHz of spectrum RJio has acquired only 3.75 MHz and will share the balance 1.25 MHz. An intra-circle roaming pact can only be signed if both operators have spectrum in the same band.
As is known, RCom has applied to the department of telecommunications for liberalising its spectrum across the 22 circles. Barring four circles — Kerala, Karnataka, Tamil Nadu and Rajasthan — where there were no auctions for 800 MHz spectrum in March 2015 and, therefore, no price discovery, RCom needs to pay the government Rs 5,384 crore to liberalise its spectrum so that it can be used for 4G services. Currently, 4G services cannot be provided using that spectrum since it was administratively allocated to RCom in 2002.
Sources said RCom will use the proceeds from RJio of Rs 4,500 crore to pay charges to ‘liberalise’ the spectrum, mobilising the remaining Rs 848 crore from internal accruals.
The RJio-RCom pact is the latest in a series of steps taken by RCom to reduce its total debt of Rs 35,254 crore. Last month it signed a non-binding pact with Malaysia’s Maxis Communications-held Aircel to explore a merger between the two telcos. Prior to that RCom entered into a similar non-binding pact with private equity firm Tillman Global Holdings and TPG Asia to sell its tower business, Reliance Infratel, which has been valued at around R21,000 crore. Besides the tower unit, Tillman and TPG will also evaluate the purchase of RCom’s extensive nationwide inter-city and intra-city optic fibre assets, in a separate and independent transaction.
Should talks with Tillman for the tower sale go through, RCom will transfer around Rs 16,000-17,000 crore of its total debt of Rs 35,254 crore to a new special purpose vehicle. If the deal for fibre materialises, another Rs 7,000-8,000 crore of debt will be cleared, thus leaving the company with a debt of around Rs 10,000 crore.
Company sources said that the Rs 10,000 crore of debt will be transferred to the RCom-Aircel merged entity, thus making RCom a debt-free company. However, it will no longer be an access service provider but turn into an enterprise services firm.
In November 2015, RCom wrapped its merger deal with Russia’s Sistema Shyam Teleservices in an all-stock deal under which the former will get access to latter’s 800 MHz spectrum across eight circles valid till 2033.
In FY15, net profit at RCom declined 32% year-on-year to Rs 714 crore. While it reported a net loss of Rs 705 crore at the standalone level in the July-September quarter, the consolidated profit for the period at Rs 156 crore remained flat compared with the previous year.
The RJio-RCom trading deal is the second in the sector since September 2015 when the government approved the spectrum trading and sharing guidelines. The first trading deal was signed in November with Idea Cellular acquiring 5 MHz of contiguous spectrum in the 1800 MHz band from Videocon Telecommunications in the Gujarat and Uttar Pradesh (West) circles for Rs 3,310 crore.