Ambani, Mittal spat over? Decoding Bharti Airtel, Reliance deal

Shares of Bharti Infratel, one of the largest tower infrastructure providers in India,surged over 4 percent in morning trade today after its parent Bharti Airtel, India’s largest telecom player, entered into an infrastructure-sharing deal with the telecom arm of Reliance Industries, creating a somewhat unlikely alliance between two rival groups.

The deal provides Bharti Infratel’s telecom towers business with a potentially lucrative new client in Reliance Jio, while allowing Ambani to develop his new telecom venture without having to build expensive infrastructure on his own. SoReliance Jio and Bharti Airtel will now have cellular networks across all the 22 circles in India.

The arrangement is critical as it could mark the entry of Mukesh Ambani into the arena of voice telephony. The Centre is planning to conduct 2G spectrum auctions in January and there is a strong possibility that Reliance Jio will be the latest entrant to bid for it.

[caption id=“attachment_1037303” align=“alignleft” width=“380”] The arrangement is critical as it could mark the entry of Mukesh Ambani into the arena of voice telephony. The Centre is planning to conduct 2G spectrum auctions in January and there is a strong possibility that Reliance Jio will be the latest entrant to bid for it.
Reuters[/caption]

Last weekKumar Mangalam Birla, chairman of Idea Cellular, articulated the fears of the industry when he told The Economic Times that “The entry of Reliance in the telecom space will cause some amount of anxiety…this is something that could be a potential game changer…everybody in the industry is waiting to see what happens.”

As Firstpost reported earlier, thedeal, which is even bigger than the infrastructure sharing pact Reliance Infocomm has signed with Anil Ambani’s Reliance Communications, is unprecedented. It will mean sharing of infrastructure for a whole range of telecom services and that too across the country.

Here is all you need to know about the deal:

1.Bharti Airtel is India’s India’s leading mobile group by revenue, while Mukesh Ambani’s Reliance Industries is soon to re-enter India’s fractious telecom market by launching a new superfast “fourth generation” business, known as Reliance Jio. The deal between the two willgive Reliance Jio, pan-India access to Bharti’s nationwide infrastructure while givingBhartiaccess to the optic fibre capacity created by Jio in future. In other words, the deal will help Reliance launch various services faster and since Reliance will pay to use Bharti’s infrastructure, it would give the debt-laden Bharti much needed cash.

“We believe this is a significant development as it gives Reliance JIO access to Bharti’s extensive infrastructure and indicates progress towards Reliance JIO’s launch which could be disruptive for the sector,” said Motilal Oswal.

The deal with Reliance Jio is likely to improve tower utilisation of Bharti Infratel and increase its rentals per tower. According to Ankit Somani of Angel Broking, the deal will lead to better cash flows for Bharti Airtel and higher tenancy ratio for Bharti Infratel.

2. The two companies will share inter and intra-city optic fibre network, submarine cable networks, towers and internet broadband services and the arrangement may be extended in future to roaming services on 2G, 3G and 4G platforms, and any other mutually benefiting areas relating to telecommunication.

3.The cooperation is aimed at avoiding duplication of infrastructure, wherever possible, and to preserve capital and the environment. This will also provide redundancy in order to ensure seamless services to customers of the respective parties. Bharti and Reliance Jio are already in an agreement underwhich Bharti had provided capacity on its i2i submarine cableto Reliance Jio.This network connects India to Singapore and is wholly owned by Bharti. Under the deal, Reliance Jio will have access to a dedicated fibre pair on the network.

4. Reliance Jio Infocomm is the only company which haspan-India airwaves that can be used for 4G services very highspeed wireless broadband services)but is yet to begin services. It has begun testing process but there is still now word on whether it will also offer voice along with high speed data on its 4G network and by when will roll out begin. Whereas Bharti has already gained first mover advantage by launching services in some circles and is now planning to extend this, possibly to voice in Bengaluru.Airtel offers all kinds of telecom services, include 4G mobile broadband.Bharti in October bought out Qualcomm Inc’s stake in a 4G broadband joint venture to take full control.

5.The financial details of the agreement were not disclosed, but an identical statement by both companies said the pricing would be at “arm’s length, based on prevailing market rates”.

6. According to a report in the Times of India, the deal will allowBharti to ride on Reliance’s 4G network to offer roaming facilities to users. While Reliance Jio has a pan-India licence for 4G services, Bharti has permits only for eight circles. However, lower operating costs now possible through the dealmay even prompt Ambani to offer dirt-cheap tariffs on broadband – similar to what he did during his initial foray into the telecom space in 2003 at rates which changed the market dynamics at that time.

7. The latest deal is far bigger than than the $2.1-billion pact Ambani announced in June with his younger brother Anil Ambani to share telecom tower infrastructure, cementing a reconciliation between the once-warring siblings.A wider agreement between Bharti and Reliance Jio may prevent further cooperation between the Ambani brothers and restrict the potential benefits to RCOM, which was counting on the deal with Reliance Jio to bolster its balance sheet.

However, a ccording to a report in the DNA , Reliance Jio will rent 2,000 national towers from Bharti and use about 8,000 km of inter-city and intra-city optic fibre belonging to Bharti. This can be seen as a filler for the areas where Reliance Communications is not present - and not overlapping with RCom.

Disclosure: The Reliance Group has funded the promoter of Network18, which publishes Firstpost