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Saturday, 8 June 2013

Reliance Jio Infocomm and RCOM $2 billion tower deal

In the biggest deal since Ambani brothers reconciliation in 2010, the Reliance brothers on Friday announced a Rs 12,000-crore tower sharing pact. Under the deal, Mukesh's firm Reliance Jio Infocomm will use about 45,000 towers owned by Reliance Communication (RCOM). This deal is significant as it will help deleverage Anil's debt-laden flagship firm RCOM, which is expected to get revenues of around Rs 800 crore annually for the next 15 years, said sources privy to the details of the agreement.

"Reliance Jio will utilize up to 45,000 ground and rooftop based towers across RCOM's nationwide network for accelerated roll-out of its state of-theart 4G services," said a statement from both the Ambani firms. The statement added that the agreement provides for ajoint working arrangement to configure the scope of additional towers to be built at new locations to ensure deep penetration and seamless delivery of next generation services. The two companies did not give details of the tenure of the agreement and the payment schedule. "This partnership paves the path for more joint agreements between the two groups along with creating a long term dependency," Gurdeep Singh, CEO, wireless, RCOM, told TOI.

The $2.1-billion deal comes after the Rs 1,200-crore fiber optic sharing arrangement between the two brothers signed in April which was the first deal to be struck between the two since their split in 2005.

RCOM's arm Reliance Infratel operates towers with a tenancy ratio of 1.74, the number of tenants per tower. A tower company can have more than one operator as a tenant which basically determines its profitability. Ankita Somani, research analyst at Angle Broking tracking the telecoms space, said the deal is a positive one for RCOM as it helps them to monetize their assets. "This deal is broadly on the expected lines and is a positive for RCOM as it opens a new source of revenue for them. Since April 2012, when the fibre optic network sharing deal was announced , RCOM shares have gained 87% on the wide speculation of this kind of deal coming in," she said.

RCOM has debts to the tune of Rs 38,000 crore ($6.6 billion) on its books as on March 31, 2013.

Analysts said Reliance Jio will be able to roll out operations of its 4G operations in just about 20 cities with the 45,000 it has leased out from RCOM. As reported by TOI earlier RIL may strike more tower sharing deals with other operators like Sunil Mittal's Bharti Infartel for a larger network presence . Reliance Jio cannot bank just on the 2300 MHz spectrum frequency for viable 4G operations in a low margin market. "The band is good for hot spots but does not have propagation characteristics for good coverage," wrote Nitin Padmanabhan and Soumitra Chatterjee of Espirito Santo Securities in a recent report.

This agreement follows the inter-city optic fiber sharing agreement already signed in April 2013 as part of a comprehensive framework of business co-operation between Reliance Jio and RCOM, said the company statement.

Reliance Jio is on its way for infrastructure sharing with all the leading telcos as part of its strategy to accelerate the launch of bundled high speed data and voice on its 4G network. However, the company is simultaneously creating its own infrastructure to reduce its dependence upon its peers. "We will own and operate everything on our own. Our telecom towers, optic fibre and other allied infrastructure are being put up as we talk now," said a Reliance Jio insider.

Shares of Reliance Communications closed 1.4% lower at Rs 11.4 after touching its 52-week high of Rs 119.9 in a weak Mumbai market on Friday. Similarly RIL shares also closed almost 1% lower at Rs 784.6.

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