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 Ambani’s 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 Ambani’s “asset light” approach in re-entering the telecom sector and lifts the sentiments at the debt-laden younger brother’s 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 RCom’s OFC network was set up by Mukesh Ambani’s 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 company’s 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