Ambani brothers join hands on telecom infrastructure

First commercial accord since 2010 truce to help R-Com monetize cable network, speed up RIL’s 4G roll-out

Aveek Dutta, Shauvik Ghosh
Updated3 Apr 2013
Reliance Jio will use R-Com&#8217;s optical fibre cable network in India for its fourth-generation broadband wireless services. Photo: Mint<br />
Reliance Jio will use R-Com&#8217;s optical fibre cable network in India for its fourth-generation broadband wireless services. Photo: Mint(Mint)

Mumbai/New Delhi: Mukesh Ambani’s 2010 truce with younger brother Anil Ambani led to the first commercial accord between the two on Tuesday—a Reliance Industries Ltd (RIL) unit will lease the optical fibre cable network of Reliance Communications Ltd (R-Com)—in a move that has the potential to catapult the older Ambani to the top of the telecom table and disturb the current pecking order.

add_main_imageAnil Ambani-led mobile services company R-Com will lease its fibre network in India to Reliance Jio Infocomm Ltd for a one-time payment of 1,200 crore, R-Com said in a media release.

The deal with Reliance Jio will help R-Com monetize its cable network and speed up RIL’s plan to roll out fourth-generation (4G) services in the country as it gets an enviable infrastructure backbone. In the undivided Reliance, the telecom business was originally led by Mukesh Ambani. At the time, he oversaw the laying of network infrastructure across the country, which will now be leased out by Reliance Jio.NextMAds

The two brothers scrapped a non-compete pact three years ago, easing the tension between them.

Reliance Jio “will utilize multiple fibre pairs across R-Com’s 120,000km intercity fibre optic network to provide a robust and future-proof backbone for rolling out its state-of-the-art 4G services”, the R-Com statement said.

A person familiar with the development, speaking on condition of anonymity, elaborated that the lease of R-Com’s optical fibre cable network would be perpetual, and once Reliance Jio rolled out its services and the “data starts flowing”, it will occupy a large chunk of R-Com’s optical fibre cable network.

However, R-Com’s statement did not specify the period for which the lease was valid. The agreement signed on Tuesday is reciprocal in nature, giving R-Com access to optic fibre infrastructure to be built by Reliance Jio in the future.

BWA (broadband wireless access) spectrum holders, such as RIL, can also offer voice services. A Telecom Commission notice last month said they could do so on payment of around 1,650 crore.sixthMAds

A telecom sector analyst with a Mumbai-based brokerage firm, speaking on condition of anonymity, said RIL has been looking for several strategic partnerships, and R-Com is yet another such partner. It doesn’t mean much for other firms in the industry as yet, he said.

Analysts expect the value of the partnership to rise significantly as both companies step up their engagement with each other.

“This agreement is the first in an intended comprehensive framework of business cooperation between Reliance Jio... and Reliance Communications to provide for optimal utilization of the existing and future infrastructure of both companies on reciprocal basis, including inter alia, intercity fibre, intra-city fibre, tower and related assets,” the R-Com statement said.

Ankita Somani, a research analyst at Angel Broking Ltd, said the critical element to look for was whether a tower infrastructure-sharing deal would be signed. “It will help R-Com to monetize its tower assets by increasing its tenancy ratio. So far R-Com has not been able to strike a deal with anyone to sell equity stake in its tower company Reliance Infratel,” she said.

R-Com is saddled with substantial debt— 37,360 crore as of 31 December. Its previous attempts to raise money by divesting its telecom tower assets and listing its undersea cable unit in Singapore have failed.

V.K. Sharma, head of private broking at HDFC Securities Ltd, said RIL joining hands with R-Com will provide some confidence to investors who have been looking to tap into R-Com’s assets.

“It’s a win-win deal for both. It is unlikely that R-Com (will) utilize its full OFC (optical fibre cable) capacity, and by letting it out to RIL, it can monetize it better. It also opens the possibility for other revenue channels for R-Com through greater cooperation with RIL,” Sharma said. “RIL, in turn, gets access to ready infrastructure without having to go through a time-consuming process, including securing approvals like right of way.”

Rajat Kathuria, director and chief executive of Indian Council for Research on International Economic Relations, pointed out that one of the biggest advantages of the partnership would be the ability of the two companies to integrate 2G, 3G and 4G telecom services.

A second person familiar with the development stated that beyond R-Com’s optical fibre cable network and towers, it may also provide RIL’s voice and data broadband offering with international connectivity through its undersea cable unit in the future. He, too, did not want to be identified.

One of the advantages RIL sees in the deal is access to key talent that helped in laying the network during the undivided company’s entry into telecom under Reliance Infocomm Ltd, an official said on condition of anonymity. These employees had moved to R-Com following the split between Mukesh and Anil Ambani, which saw the latter assume control of the telecom business.

This official added that leasing fibre capacity from R-Com gives RIL a substantial cost advantage, as it gets access to the network at 1 lakh per km, whereas the current cost of laying a new network would be around 12 lakh per km.

RIL is speaking to other companies for leasing out infrastructure for its telecom venture as well, thought it does not intend to make any equity investment in such companies, the official said. No equity participation between RIL and R-Com is envisaged either.

RIL, which re-entered telecom through the acquisition of Infotel Broadband Services Pvt. Ltd—the only pan-India winner of BWA spectrum in 2010—is expected to roll out services this fiscal in Delhi, Mumbai and Jamnagar.

The telecom business, which has always been close to Mukesh Ambani’s heart, went to younger brother Anil after an acrimonious family split in 2005. The termination of a non-compete agreement between RIL and the Reliance Group signalled a thaw in the relations between the two sides.

Sharma of HDFC Securities said the two brothers and their conglomerates working together would be an overall positive for the markets.

This sentiment drove up the stock prices of other Reliance Group firms as well. The market value of Anil Ambani’s holding in the group’s various listed firms rose by 4,152 crore to 1.43 trillion on Tuesday.

Ruchita Saxena in Mumbai contributed to this story.

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