Mumbai: The Ambani brothers announced their first collaboration after splitting their father's business enterprise eight years ago, with Mukesh, the chairman of Reliance Industries, agreeing to use his younger sibling's optic fibre network to launch his mobile venture.
The first business collaboration since the billionaire brothers scrapped no-compete agreements, which prevented Mukesh from entering industries in which Anil was present, three years ago may eventually extend to other sectors such as power and entertainment, a number of analysts said.
As part of the deal announced on Tuesday, Reliance Jio Infocomm, the telecom arm of RIL, will get access to Reliance Communications' national and international optic fibre for an up-front payment of 1,200 crore. The amount will be paid to RCOM as soon as it readies the network for RIL's use.
More telecom infrastructure-sharing deals are in the works, according to the announcement to BSE. This may largely involve RIL's fourth-generation services riding on telecom towers owned by Reliance Communications, which is owned by Anil.
Stocks of companies belonging to Anil Ambani, which operate under the Reliance Group brand, all benefitted from the announcement. RCOM shares went up 11% at 63.30 apiece while Reliance Power, Reliance Mediaworks and Reliance Capital all went up between 4-5%.
"We believe the deal is a positive for Reliance Communications," according to JPMorgan Asia Pacific Equity Research.
However, it is a token positive at best in the absence of further co-operative steps. The onetime fee of Rs1,200 crore will not produce any change whatsoever in RCOM's net debt to EBITDA ratio (nominally changes from 5.6x to 5.5x).
The recurring cash flows/revenues will start to flow when Reliance Jio will launch 4G services, the time frame for which is yet to be disclosed. Hence, the revenue potential of this single deal is unlikely to move the needle for RCOM's financials (revenues, debt ratios among others)," JPMorgan Asia Pacific Equity Research said.
"Logically it would mean that RIL has chosen not to roll out but lease infrastructure because if it was building itself, the logical thing would be to have its own backbone," said Kamlesh Bhatia, principal analyst at research firm Gartner. However, an official at RIL said the company still plans to build some towers and lay some optic fibre of its own. RCOM will, as a matter of reciprocity, have access to that infrastructure, according to the joint statement.
A senior tower industry official, who asked not to be named, said RIL would largely share RCOM's towers following this announcement given that optic fibre is typically laid between towers and would not be connected to towers of other operators.
It is also a lengthy and daunting task to build more towers along an existing network, the official said. Talks of such a deal being struck have been doing the rounds since October 2010, shortly after RIL won its licence in the May 2010 auctions. ET had first reported concrete steps towards an agreement in November 2011, after which talks went cold.
In January this year, ET again reported revival of the talks. In the new round of negotiations, RIL pushed RCOM hard on pricing, a reading of the negotiations three analysts who asked not to be named agreed with. The indefinite sharing of optic fibre at Rs1 lakh per 1,000 km is probably the lowest ever, they said. Jio Infocomm's service launch has been long awaited as a potential disrupter in pricing of data service offerings.
However, RIL seems to have been dragging its feet so far, amid confusion and lack of clarity on the final rollout plan, according to industry officials. This deal is a first step in the direction of finalisation of concrete plans, said an RIL official.
The company has also tied up with Samsung, Huawei and ZTE for 4G radio equipment for its launch. However, the end devices using LTE 4G technology in the 2,300 MHz frequency are still few.
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