Bharti-Reliance Jio deal: What both companies will gain

Written By Unknown on Kamis, 12 Desember 2013 | 21.43

NEW DELHI: Bharti Airtel plans to leverage its recent infrastructure-sharing deal with the telecom arm of Reliance Industries, by riding on the Mukesh Ambani-owned company's proposed optic fibre network, thereby reducing its capital expenditure, said a senior company executive.

The infrastructure-sharing agreement that was announced by the two companies on Tuesday has been widely interpreted in the industry as a pact that favours Reliance Jio as it will be able quickly roll out voice and data services by accessing Bharti's nationwide infrastructure.

A top Bharti executive, however, disputed the contention that his company stands to gain little. He said the company has identified high speed data services as a key growth driver of the future, for which it needs optic fibre.

"At present, only 10% of our towers are connected through fibre and going forward as the company rolls out more high speed broadband networks, it will need more fibre connected to towers. In the next four to five years, opportunities to share infrastructure and investments will increase. Trenching, digging and laying the fibre are extremely expensive. We will use the Reliance Jio network in places where it exists and not create our own infrastructure," he said.

Reliance Jio has embarked on an aggressive optic fibre rollout plan and has obtained 'right of way' access to lay its network across several circles.

Bharti has been a step behind Reliance Jio in this process. Moreover, given the $9.6 billion debt on its books, Bharti Airtel has so far refrained from making large investments required for digging and laying the optic fibre.
"We have and will obviously do our calculation to ensure it is a win-win deal for both the parties. Bharti Infratel stands to gain immediately through higher tenancy ratios but the strategic level gains are much wider," said the executive quoted earlier.

Bharti Infratel is Bharti Airtel's telecom towers subsidiary and as per the agreement between the two companies, Reliance Jio can access these towers for a fee. Some analysts say the benefits could extend beyond the obvious points of collaboration and the agreement could usher in a more benign competitive environment.

"Historically, Indian telcos who have collaborated in the back end, have also had interests aligned in the front end (Bharti/Vodafone/Idea for example). If the agreement between Bharti and RJio is taken to the full logical conclusion as implied by the press release, it could mean a more benign competitive environment—across tariffs, vendor negotiations and even spectrum auctions," said a report released by brokerage house Credit Suisse on Wednesday.

It added that the pact between the two could be negative for the Anil Ambaniowned Reliance Communications.

"In our view, RCom's current share price implied a significant extension of the agreement between RCom and Reliance Jio over and above what was already announced (and built into our numbers). We see the likelihood of any such extension low after today's Bharti-Reliance Jio announcement," added the report.

Bharti's share price on Wednesday fell 2.15% to Rs 328.15 and Reliance Communications' fell 3.30% to Rs 133.40 on the BSE. Sensex ended 0.83% lower at 21,171.41.


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