Friday, December 13, 2013
Reliance Jio, Bharti Airtel ink unprecedented pact for sharing telecom infrastructure
New Delhi, Dec 11, 2013: Bharti Airtel, India's largest telecom company by market cap and revenues, has entered into an infrastructure-sharing deal with the telecom arm of Reliance Industries, creating a somewhat unlikely alliance between two groups usually perceived to be bitter rivals.
The deal will give the telecom unit, Reliance Jio, pan-India access to Bharti's nationwide infrastructure while giving Bharti access to the optic fibre capacity created by Jio in future. Consequently, RIL might be able to launch telecom and broadband services in the near future riding on Bharti's infrastructure, much earlier than if it had to build its own infrastructure. "It has cut Reliance Jio's time to market by several years," an industry official said.
Airtel, for its part, will see its cash flows boosted by lease rentals from Jio. "The sharing could extend to roaming on 2G, 3G and 4G, and any other mutually benefiting areas relating to telecommunication", both the companies said in a statement, reflecting the expansive contours of the deal between the two.
Pricing to be at an Arm's Length
The statement added that the scope of the partnership also extended to jointly laying optic fibre and rolling out other forms of infrastructure services.
The companies said that pricing would be at an arm's length, based on the prevailing market price. This is the second infrastructure-sharing arrangement between the two. In April this year, the two had signed an agreement under which Bharti has provided capacity on its i2i submarine cable to Reliance Jio.
The latest deal, some experts say, potentially overshadows Reliance Jio's infrastructure-sharing deal with Reliance Communications, announced in June 2013, which included sharing of optic fibre and access to 45,000 towers.
The announcement comes a day after RIL Chairman Mukesh Ambani called for a collaborative partnership with Sunil Mittal, the chairman of Bharti Enterprises, widely perceived to be his arch rival in the telecom arena. Ambani was speaking at the Progressive Punjab Summit on Monday.
"It is a win-win situation for both the companies as they have come together to synergise. While Reliance Jio's time to market has been cut down incredibly, Bharti will be able to sweat out its assets and earn significant rentals in leasing infrastructure to Reliance," said Prashant Singhal of EY.
Both the companies said the primary reason for joining hands was to cut the duplication of infrastructure wherever possible and to preserve capital and the environment. "We are moving to an era of cooperation along with competition," said Hemant Joshi of Deloitte Haskins & Sells, on the coming together to two arch rivals.
In terms of assets, Bharti's tower arm Bharti Infratel has over 35,000 towers across 11 telecom circles. It also has a 42% equity interest in Indus Towers, a joint venture with Vodafone and Idea and India's largest tower company with over 1.1 lakh towers in 15 telecom circles. Bharti also has a nationwide longdistance network and is part of a global submarine network covering 50 countries.
Industry experts feel the deal would have far-reaching ramifications for the telecom sector which is widely expected to see significant consolidation now the government has liberalised the M&A norms for the sector.
Deal better for Jio?
Some industry officials say the gains for Reliance Jio appeared to be larger as it would be able launch telecom services on the back of Bharti's infrastructure while Bharti's only gain would be revenues from lease rentals. "The deal mostly seems to benefit Jio.