Advantage: Anil Ambani..? Or Jio Buy - out..?

The Financial Express writes on 13 January, 2017: Right now, incumbents are using 4G spectrum to offer data services to subscribers and continue to offer voice calls using older GSM networks. If there is a surge in voice traffic after free voice becomes the norm, these telcos will then have to invest more in capacity to augment their ability to carry voeice traffic on their GSM networks. Their best bet, in such a situation, is to accelerate their migration to VOLTE networks of the type RJio has—some of them have, in any case, been carrying out trials on this in select areas. 

The problem, however, is that while lower frequency bands are better suited for this, none of the incumbents have a pan-India network of, say, 900 MHz spectrum where VOLTE networks can be deployed. The best bet in such a situation is 700 MHz, but thanks to the regulator putting an arbitrarily high reserve price for this spectrum, and pegging it at four times that of the 1800 MHz band, there were no bidders for this band in the last auction.

The result of this was that telcos which already have spectrum in the 800/900 MHz bands continue to enjoy an unfair advantage—the 800 MHz spectrum RJio is using was ‘liberalised’ by RCom at a cost of around Rs 5,300 per MHz as compared to the Rs 11,485 crore reserve price for 700 MHz. 

In the past, when the regulator had come up with irrational reserve prices, the government had reduced it—in 2012, while Trai recommended 800 MHz be priced at twice the 1800 MHz price, the Cabinet lowered this to 1.3 times and when the auction still failed, the reserve price was further cut by half in 2013. 

For reasons best known to it, the government chose not to do the same this time. Were the government to continue to price 700 MHz spectrum very high, this will result in a big advantage to RJio.

Reliance Communications Ltd (Rs.31.40) has one of the highest concentrations of 800 MHz spectrum among the telecom players, for which it is going to get Royalty from RJio. So, an advantage to RJio gives indirect positives to RCom, which has been mentioned here umpteen number of times.

Earlier, the Junior Ambani has shown the white flag to Mukhesh, by announcing that RCom has virtually merged with RJio.

However, on the flip side off late there are strong rumours in th market that Mukhesh Ambani wants to lap up RCom at dirt cheap price, through an open offer by hammering its shares.

It is to be noted that, Anil and Mukesh Ambani, despite being brothers, have had a tumultuous relationship in the past.

The Telegraph writes on 14 January, 2017: It is a saga worthy of a Bollywood melodrama. The story of the Ambani brothers is one of vast fortunes and billionaire glamour, a bitter feud and a vicious business rivalry.

Now one of Britain’s biggest companies is caught in the crossfire of the 15-year battle between Mukesh Ambani and his younger brother Anil. Vodafone is suffering in India, to the tune of at least £4.4bn in write-downs so far, as the elder Ambani, India’s richest man, mounts a £20bn onslaught on the mobile market, hitherto Anil’s territory.

RCom had already signed a 17-circle airwaves sharing pact in the 800 Mhz band with Jio. It has also agreed to sell its 800 Mhz airwaves in nine service areas to Jio where the latter does not have spectrum in that band. But still it gives RCom an edge over RJio in the 800 MHz space.

Anyway, under the partnership announced earlier, RCom brings in most of the spectrum while Jio provides the network and much of the cash for conversion of the spectrum. The regulators should look into this aspect too; as the minority shareholders continue to suffer.