With RCom Takeover, India's RJio Becomes Even Bigger Threat

Indian upstart Reliance Jio has already turned the country's mobile industry on its head, triggering a wave of consolidation since launching its low-cost service in late 2016. With its recently announced deal to acquire various assets from Reliance Communications, India's sixth-largest operator, Reliance Jio looks poised to become an even stronger force in the 4G and broadband markets.

The agreement -- which gives Reliance Jio (RJio) assets including spectrum, telecom towers and fiber-optic lines -- will bolster RJio's 4G footprint and make it a much tougher adversary to archrival Bharti Airtel, one of India's biggest players.

While the size of the deal was not disclosed, media reports say it is worth about 240 billion Indian rupees ($3.8 billion). For RJio, it brings about 178,000km of optic fiber, some 43,000 towers and 122.4MHz of spectrum, licensed until 2033, across the 800MHz, 900MHz, 1800MHz and 2100MHz frequency bands.

"These assets are strategic in nature and expected to contribute significantly to the large-scale rollout of wireless and fiber-to-the-home services by the company," said RJio in its press statement.

New spectrum could prove critically important. Most of the airwaves RJio has acquired from Reliance Communications Ltd. (RCom) lie in the 900MHz and 2100MHz bands, while its existing network uses the 2300MHz range. Although service rollout using new spectrum could drive up capital expenditure, the 900MHz spectrum, in particular, could help RJio to improve service quality inside buildings, which are difficult to cover using higher frequency bands.

But the chief benefits may come with RCom's fiber assets, as RJio prepares to challenge Bharti Airtel Ltd. (Mumbai: BHARTIARTL) in India's burgeoning FTTH market.

RJio is already test marketing a fiber service called Jio Fiber in several Indian cities and could prove as disruptive in this sector as it has already been in mobile. Before the RCom takeover, it had about 300,000km of its own fiber. With RCom's intra- and inter-city fiber, that figure has now grown to about 478,000km, meaning RJio can serve a much bigger chunk of India's population.

What's more, fiber assets will be vital for backhaul purposes when India's operators launch higher-speed 5G mobile services. Without decent-quality fiber, the backhaul part of the network, which ferries mobile traffic from basestations to core network systems, may become a bottleneck.

Thanks to the RCom deal, RJio now owns far more fiber than Airtel, whose networks currently include about 250,000km of fiber throughout India. As the battle for FTTH customers hots up, and as operators begin to make plans for the introduction of 5G technology, this difference could translate into a huge service advantage for RJio.

Following the RCom acquisition, RJio should also be able to cut its operational expenditure on towers. According to media reports, RJio was a tenant on nearly 30,000 of RCom's towers. Those rental payments will now cease.

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All this said, RJio already had access to RCom's infrastructure thanks to an earlier network-sharing agreement between the two players. It was already using most of the towers and fiber it has now acquired. In other words, while the takeover should lead to cost savings for RJio, it might not bring operational advantages the operator did not previously enjoy.

Nevertheless, the deal between Mukesh Ambani, the owner of RJio, and brother Anil, who controls RCom, had long been anticipated. In a peculiar twist, the agreement represents a kind of homecoming for Mukesh, who started Reliance Infocomm, the company that eventually became RCom and was acquired by Anil.

With this deal, the spate of consolidation in India's telecom industry may finally have come to an end. Just two years ago, India had as many as 12-14 telecom operators per circle (or service area). RJio's arrival has whittled the number down to just three private sector players of any significance across the entire country -- Airtel, a merger between Idea Cellular Ltd. and Vodafone India (still subject to regulatory clearance) and RJio. As 2018 begins, India seems ready to embark on a new chapter in its telecom story.

— Gagandeep Kaur, contributing editor, special to Light Reading