By Devangi Narang
The telecom arm of Reliance Industries, Reliance Jio, has entered into an agreement to buy specified assets of Reliance Communications (RCom) in a deal signed on Thursday, 28 December 2017. RCom, led by Anil Ambani, is under a whopping debt of Rs. 45,000 crore and has been looking for ways to shed it. Thursday’s “definitive binding agreement” comes as a result of RComs concerted effort for a smooth sale of its telecom assets to bring down its debt to Rs. 6000 crores by March 2018.
The deal signed is for the sale of RCom’s assets in four categories- wireless spectrum, towers, optic fibre cable network (OFC) and media convergence node (MCN) assets. The acquisition is, however, subject to receipt of requisite approvals from government and regulatory authorities, consent from all lenders and the release of all encumbrances on the assets. The transaction will close in a phased manner from January through March 2018.
A win-win situation for both the players
The deal will emerge as a win-win situation for both the companies because Jio will firepower its telecom business with RComs assets while RCom will use the proceeds to payoffs its debts. Moreover, Jio will benefit from this deal as the newly procured assets will augment Jios Fibre-To-Home (FTH) which is expected to be launched in 2018. The deal is also expected to supplement Jio in its enterprise operations.
What is more significant is the fact that the deal was strategically planned in time for the 85th birth anniversary of Dhirubhai Ambani, the founder of Reliance. This deal could be the Ambani brothers’ first step towards some sort of consolidation of their father’s business which they split more than ten years ago. However, the deal is not entirely unexpected. There have been enough indications hinting towards this in the past.
“As far as our 100 million customers are concerned, as far as our 1 million retailers are concerned, as far as our employees are concerned, and as far as our vendors and partners are concerned, there has already been a virtual merger of the two organisations (RCom and Jio),” Ambani had told shareholders at RCom’s AGM in September last year.
Post the announcement of the deal, RComs shares surged from 7.72% to Rs 30.96 on the Bombay Stock Exchange (BSE) and the shares of Reliance Industries Ltd gained 0.23% to Rs924.40.
Mega deal to take on Bharti Airtel in telecom war
Keeping a larger perspective in mind, Reliance Jio is all set to augment its fight with rival telecom Bharti Airtel with its deal with Rcom. In fact, with this acquisition, the Jio-Bharti battle will not just be limited to mobile telephony but will extend to the fibre to home space (FTTH) too.
In the coming year, both the companies are planning to aggressively expand their businesses. Jio will launch high-speed FTH services with its offer of broadband and television services as well.
By acquiring RComs fibre assets (about 178,000 km), Jio will have a larger network than Airtel, controlling more than 428,000 of inter and intra-city fibre across the country. This would enable Jio to launch its FTTH in over 30 cities across the country next year. The deal will not only make Jio the second largest tower owner in the country with over 143,000 towers in its kitty (Jio already has 100,000 towers of its own), but it will also help the company deepen its 4G coverage to take on Bharti Airtel more effectively.
Consolidation of the telecom sector
Reliance Jios entry has drastically changed the landscape of the Indian telecom industry. The tariff war initiated by Jio fast-tracked the consolidation of the telecom sector. Vodafone India Ltd and Idea Cellular Ltd announced a merger earlier this year, and Bharti Airtel Ltd acquired assets of Telenor India, Tikona Digital and the consumer mobile business of Tata group to regain its lost market share. The RCom-Jio deal is also part of the entire ongoing consolidation and each player trying to have a presence in all the service areas. As we move towards a more mature and evolved telecom market, consolidation is natural.
There are still tremendous opportunities in India’s telecommunication sector, but there is only room for four or five large telcos. The emerging landscape of the three dominant playersJio, Airtel and Vodafone-Idea combineseems to be the landscape of the operator community in the near future.
Featured Image Credits: Santosh Vattam on Visual hunt / CC BY-NC-SA