Mumbai, April 7
Bharti Airtel entering into a ₹ 1,037.6 crore spectrum swap deal with Reliance Jio Infocomm (RJio) will be mutually beneficial for both companies, even if it suggests moderation in the competitive dynamics of the telecommunications industry.
On Tuesday, Bharti Airtel entered into a spectrum swap deal with RJio, under which it agreed to transfer the airwaves through three circles.
Read the story: Big Thaw: Airtel and RJio in ₹ 1,037.6 CR spectrum deal
“We note that Airtel had obtained the above spectrum in the 800 MHz band from the acquisition of Tata Teleservice (in 2019) and that these spectrum bands were largely unused because the company had a 900 MHz network. existing in the service areas of Andhra Pradesh, New Delhi and Mumbai. Therefore, by selling the spectrum to Jio, Airtel is able to monetize the unused spectrum assets, ”according to a report from Credit Suisse.
“For RJio, the company is able to secure additional 800 MHz spectrum blocks at 47% off the government auction reserve price (prorated for the remaining license term). In addition, RJio now has a contiguous block of 2×10 MHz on a spectrum of 800 MHz each in the service areas of Andhra Pradesh and Delhi and of 2×15 MHz in the service area of Mumbai ”, he added. .
The additional spectrum will help RJio to increase its capacity in the three service areas (Delhi, AP and Mumbai), which account for 17% of its gross revenues.
According to brokerage firm UBS, Bharti Airtel had acquired these frequencies from Tata and remained unused. Bharti is therefore in a position to unlock value, and there is no lost “strategic opportunity” for the company, as this agreement strengthens RJio’s footprint in these circles.
RJio, through this agreement, has strengthened its participation in these circles. With a remaining validity of 14 years, the implied cost per MHz per year is ₹ 14 lakh, a 50 percent reduction from the auction price. So Jio not only built 10-15MHz blocks in these key circles, but potentially saved $ 400 million.
According to Morgan Stanley, RIL’s purchase of spectrum highlights its continued focus on subscriber market share.
“We assume that RIL’s subscriber network is improving after a slowdown over the past few months and decreasing the churn rate as Jiophone’s revived offering gains popularity. We assume 40 million net additions in FY22 versus 30 million net additions in FY21 (estimate), ”he added.