In a much-anticipated move, Reliance Communications and Reliance Jio, which are controlled by brothers Anil Ambani and Mukesh Ambani respectively, are close to entering a spectrum sharing and trading agreement in the 800-850MHz frequency band, Anil Ambani revealed during a recent meeting with his shareholders.
The agreement suits both companies. While Reliance Communications Ltd. would be able to reduce its huge debt, Reliance Jio would obtain a means of providing voice services by relying on RCom's network. (See Reliance JioCom in the Making? )
However, not all of RCom's spectrum is liberalized and trading is allowed only when it falls into that category. The company will, therefore, need to liberalize airwaves by paying market value for them before it can enter into any trading or sharing arrangements.
RCom has already applied to get its spectrum liberalized in ten circles at an expected cost of between 15 billion Indian rupees ($228.3 million) and INR18 billion ($274 million). Liberalizing spectrum in all of its circles would cost the operator around INR70 billion ($1 billion).
Although RJio acquired 800MHz spectrum in ten circles (similar to RCom) in March this year, it has contiguous spectrum (allowing it to support higher-speed services) in only four. The trading or sharing of spectrum with RCom would allow it to convert its fragmented holdings into contiguous ones.
Trading with Reliance Jio should also help RCom to reduce its colossal debt of INR380 billion ($5.78 billion) while enabling RJio -- which is due to launch 4G services in December -- to add to its spectrum booty.
And the incumbents?
The incumbents -- Bharti Airtel Ltd. (Mumbai: BHARTIARTL), Vodafone India and Idea Cellular Ltd. -- will be keenly watching the activities in the Reliance camp. Following a tie-up with RCom, RJio would be able to offer voice services to its subscribers using circuit-switched fallback (CSFB) technology, besides voice over LTE and voice over WiFi. That would nullify the advantage currently enjoyed by Bharti Airtel, which owns networks based on 2G, 3G and 4G standards.
Another key advantage of the incumbents is their customers. With 110.44 million subscribers (at the end of July 2015 as per regulatory data), RCom is India's fourth-largest operator. A deal would give RJio access to these users, with an arrangement between the Ambani brothers including reciprocal agreements for roaming on each other's networks.
Indeed, a collaboration of this nature could produce a network with unparalleled reach and capability in India. Other incumbents, which are already struggling to improve the quality of their networks, might witness an exodus to the newly minted 4G network of the Ambani brothers. (See India's Dropped Calls Fiasco.)
At the same time, however, the incumbents will be trying to supplement their arsenal for the 4G war ahead. The next few months are likely to witness a bout of consolidation and tie-ups between operators besides RCom and RJio.
The MTS part of the equation
Anil Ambani's RCom has already been in close talks with Sistema Shyam TeleServices Ltd. about a possible merger. Sistema Shyam's MTS India brand remains India's only pure-play CDMA service provider and has operations in the nine circles of Delhi, Gujarat, Karnataka, Kerala, Kolkata, Rajasthan, Tamil Nadu, UP (West) and West Bengal. Unlike RCom, MTS India holds no spectrum that has not been liberalized.
Moreover, MTS India is probably the only service provider in India that is focusing on data. The combined entity would have around 45 million mobile Internet subscribers, which could support RJio's ambitions following an agreement between the Ambani brothers.
Even so, rules about mergers and acquisitions are far from clear-cut in India and any deal is likely to encounter hurdles. Existing M&A regulations mean that RCom would exceed spectrum caps in a few circles following a tie-up with MTS India. It is not clear whether the company would be able to trade the excess spectrum and it might simply have to surrender some of its holdings to the government.
— Gagandeep Kaur, contributing editor, special to Light Reading