What the Jio-Airtel spectrum deal means2 min read . Updated: 10 Apr 2021, 06:26 AM IST
- The sale of spectrum in 3 key circles is expected to benefit both the telcos
NEW DELHI: Bharti Airtel Ltd recently sold airwaves in the 800MHz band to bigger rival Reliance Jio Infocomm Ltd for ₹1,037.6 crore in the first such deal between the two telcos. Jio also agreed to absorb future liabilities of ₹459 crore relating to the spectrum.
The sale of spectrum in Andhra Pradesh, Delhi and Mumbai is expected to benefit both the telcos, which have been bitter rivals since Reliance Jio’s entry upended the Indian telecom industry. The Mukesh Ambani-led company introduced free voice calls and cut-rate data services in 2016, triggering a bruising price war that contributed to rivals reporting steep losses and mounting debt. Mint takes a closer look at how the two companies will benefit.
How does Reliance Jio benefit from the deal, and why is the 800MHz band important?
The spectrum trading agreement will not only help Jio build capacity in three key circles that account for 17% of its gross revenues but will also save 50% of the total cost that it would otherwise bear to buy airwaves in a government auction. It should be noted that Jio could have bought the spectrum in the recently concluded auction on 2 March, where the department of telecommunications (DoT) put enough 800MHz band under the hammer. Reliance Jio provides only 4G wireless service and largely uses 800MHz for the same. “Jio, through the deal with Airtel, has topped up its holding in these circles to 10MHz, 10MHz and 15MHz, respectively, for a total of ₹1,497 crore. With remaining validity of 14 years, the implied cost/MHz/annum comes to ₹14 crore, a 50% discount to the auction price," UBS said in a report. “Jio has, therefore, not only built up 10-15MHz blocks in these key circles, but has potentially saved $400 million. The deal has strengthened Jio’s footprint in these circles," it added.
How Bharti Airtel benefits from the deal?
The sale will allow Airtel to unlock value of unutilized spectrum that it received from the acquisition of Tata Teleservices Ltd. Airtel did not use the acquired spectrum so far as it has an existing network built on 900MHz band in Andhra Pradesh, Delhi and Mumbai. Besides, the Sunil Mittal-led company bought pan-India sub-gigahertz, or sub-GHz, mid-band and 2,300MHz spectrum in the recent 4G auction. The sub-GHz band will enable the operator to improve 4G coverage indoors and in rural areas, the company had said after the auction. “Airtel has sub-1GHz network pan India (except Jammu & Kashmir). Post the recent spectrum auction and factoring the remaining 800MHz from Tata Teleservices acquisition, Airtel now has sub-1GHz network across India with at least 2x5.0MHz of sub-1GHz spectrum in all service areas, strengthening the company’s network coverage," Credit Suisse said in a report.
How does it impact Jio subscribers?
The purchase of spectrum by Jio in three key circles also underlines the company’s focus on gaining market share. Though Jio is India’s largest telco by market share, its net customer addition slowed down in the past few quarters. Higher network capacity and improved service quality in these circles may help the telco retain and add more customers.
“Jio’s acquisition of 7.5MHz spectrum in the 800MHz band from Bharti in three circles highlights its strong focus on subscriber market share. We assume Jio’s subscriber net additions improve after slowing down in the past few months and lower churn as the reinstated supply of JioPhone gains subscriber traction. We assume 40 million net additions in FY22 compared to 30 million estimated net additions in FY21," Morgan Stanley said in a report.
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