India's Department of Telecommunications (DoT) has rejected the spectrum sale agreement between Reliance Jio and Reliance Communications (RCom) as it does not conform with the guidelines.
Jio had recently written to the DoT to say it didn't want to be held responsible for RCom's existing spectrum dues, something it would have needed to assume in line with the government's guidelines. As a result, the DoT was unable to approve the deal.
Anil Ambani-led RCom had agreed to sell spectrum to brother Mukesh Ambani's RJio last year in an effort to repay creditors. As part of this deal, Jio had agreed to buy 122.4Mhz of spectrum from RCom, which is currently carrying a debt of around INR460 billion ($6.54 billion). Among the long list of creditors is Ericsson, which is owed about INR5500mn ($78.28 million) by RCom. The last date to clear the payment was on December 15.
RCom's inability to pay its creditors is likely to push the operator towards insolvency. The only way to avoid this is to find a buyer for the spectrum and other assets. The incumbent telcos will be reluctant to buy RCom's spectrum because they are already under huge debt and more importantly, don’t really need the spectrum right now, so it is unlikely RCom will be able to find a buyer now. So, RCom and Anil Ambani are in a tough spot unless brother Mukesh Ambani comes to the rescue. RCom also has an agreement with Jio for the sale of its towers.
The collapse of the deal is not likely to hamper RJio's progress. "As far as RJio is concerned, it is unlikely to be as keen for the RCom airwaves as it would have been a year ago. Its 4G juggernaut has started to roll better than the expectations of many in the industry and it is also looking forward to a 5G spectrum auction," says Deepak Kumar, founder analyst of market research firm B&M Nxt. The 5G spectrum auction is likely to be held in the second half of 2019: RJio has been pushing for early auction of 5G spectrum.
"Couple that with [RJio's] wireline broadband strategy that is taking a definitive shape, and that makes the RCom spectrum a little more than a good-to-have potential asset for RJio. That explains some of its reluctance in inheriting the liabilities pertaining to RCom airwaves," adds Kumar.
— Gagandeep Kaur, contributing editor, special to Light Reading