Deal said to be 10 times bigger than previous one.
By R. Chandrasekaran
CHENNAI: Companies controlled by the Ambani brothers, Mukesh and Anil, have struck a deal on tower sharing, which is estimated to be 10 times higher than the first deal they struck on April 3.
The deal comes on the heels of Mukesh Ambani’s address to Reliance Industries shareholders in Mumbai on Thursday, where he announced a Rs.1.5 trillion investments in five business segments simultaneously. This included telecom sector.
Reliance industries subsidiary Reliance Jio Infocom and Reliance Communications (RCOM) reached an understanding on leasing of 45,000 of the more than 50,000 towers of Anil Ambani-managed Reliance Communications. A deal on tower-sharing between them were expected for quite some time.
On April 3, the companies of the two brothers reached an agreement for the first time after they split in 2004 and after they scrapped non-compete agreement a few years ago. The deal allowed Mukesh Ambani-managed Reliance Jio Infocom to use RCOM’s fiber-optic network that had the potential to generate Rs.12 billion for RCOM, which came in timely given the debt burden it has.
The current deal is projected to be 10 times higher than the first one offering RCOM Rs.120 billion during the agreement’s life time of 15 years. This suggests that the company will be generating approximately Rs. 8 billion a year.
Reliance Jio Infocomm will be rolling out its 4G network through out the country and the company has been engaged in striking various deals for this. The company also struck a deal with Sunil Mittal-controlled Airtel on April 23 for sharing submarine cable network, which came in contrary to market expectations.
The latest deal between the two companies should be a big boost for Anil Ambani’s RCOM, which is burdened with heavy debts. Undoubtedly, this has opened a new source of revenue generation for RCOM. Now, the company will probably not be thinking in terms of selling its tower company either fully or partly. Even if it plans to divest the tower company with a view to reduce its debt burden, it could possibly go to Reliance Jio Infocom, as the latter will be keen to safeguard its interests.
Shareholders and analysts were expecting some announcement on 4G roll out during the annual general meeting on Thursday. However, it did not happen. Today’s announcement will probably give some inkling of its proposed network plan.
Everyone in the telecom sector is very well aware that after the Reliance entry into the mobile segment, the rate structures had undergone a sweeping change. In fact, when Mukesh Ambani launched the mobile service earlier in December 2002 on Dhirubhai Ambani’s birthday, he indicated that call rates would be cheaper than a post card.
His re-dialing of the telecom sector is expected to change the market conditions. This could also be seen from the way he has planned to increase the head count of Reliance Jio Infocom to 10,000 from the current 3,000 level signifying his renewed interest in the telecom sector.
Mukesh Ambani has also indicated that the broadband rates will fall significantly in the future, suggesting that once he rolls out 4G network, there will be a stiff competition on rates and the consumers are in for a fresh experience.
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