Reliance Jio, Bharti Airtel ink unprecedented pact for sharing telecom

infrastructure
Bharti Airtel, India's largest telecom company by market cap and revenues, has entered
into an infrastructure-sharing deal with the telecom arm of Reliance Industries, creating
a somewhat unlikely alliance between two groups usually perceived to be bitter rivals.
The deal will give the telecom unit, Reliance Jio, pan-India access to Bharti's nationwide
infrastructure while giving Bharti access to the optic fibre capacity created by Jio in
future. Consequently, RIL might be able to launch telecom and broadband services in
the near future riding on Bharti's infrastructure, much earlier than if it had to build its own
infrastructure. "It has cut Reliance Jio's time to market by several years," an industry
official said.
Airtel for its part, will see its cash flows boosted by lease rentals from Jio. "The sharing
could extend to roaming on 2G, 3G and 4G, and any other mutually benefiting areas
relating to telecommunication", both the companies said in a statement, reflecting the
expansive contours of the deal between the two.
Pricing to be at an Arm's Length
The statement added that the scope of the partnership also extended to jointly laying
optic fibre and rolling out other forms of infrastructure services.
The companies said that pricing would be at an arm's length, based on the prevailing
market price. This is the second infrastructure-sharing arrangement between the two. In
April this year, the two had signed an agreement under which Bharti has provided
capacity on its i2i submarine cable to Reliance Jio.
The latest deal, some experts say, potentially overshadows Reliance Jio's
infrastructure-sharing deal with Reliance CommunicationsBSE -3.30 %, announced in
June 2013, which included sharing of optic fibre and access to 45,000 towers. The
announcement comes a day after RIL Chairman Mukesh Ambani called for a
collaborative partnership with Sunil Mittal, the chairman of Bharti Enterprises, widely
perceived to be his arch rival in the telecom arena. Ambani was speaking at the
Progressive Punjab Summit on Monday. "It is a win-win situation for both the companies
as they have come together to synergise. While Reliance Jio's time to market has been
cut down incredibly, Bharti will be able to sweat out its assets and earn significant
rentals in leasing infrastructure to Reliance," said Prashant Singhal of EY.

Both the companies said the primary reason for joining hands was to cut the duplication
of infrastructure wherever possible and to preserve capital and the environment. "We

are moving to an era of cooperation along with competition," said Hemant Joshi of
Deloitte Haskins & Sells, on the coming together to two arch rivals.
In terms of assets, Bharti's tower arm Bharti Infratel has over 35,000 towers across 11
telecom circles. It also has a 42% equity interest in Indus Towers, a joint venture with
Vodafone and Idea and India's largest tower company with over 1.1 lakh towers in 15
telecom circles. Bharti also has a nationwide long distance network and is part of a
global submarine network covering 50 countries.
Industry experts feel the deal would have far-reaching ramifications for the telecom
sector which is widely expected to see significant consolidation now the government
has liberalised the M&A norms for the sector.
Deal better for Jio?
Some industry officials say the gains for Reliance Jio appeared to be larger as it would
be able launch telecom services on the back of Bharti's infrastructure while Bharti's only
gain would be revenues from lease rentals. "The deal mostly seems to benefit Jio.
Gains to Bharti need to be evaluated. The firm is giving its entire advantage away," said
an industry expert who didn't wish to be named. While Bharti stands to earn hefty
rentals form Jio, thus boosting its cash flows, industry experts say the gain from
Reliance Jio's optic fibre capacity expansion will be realised only in future.

Shares of Bharti Infratel, one of the largest tower infrastructure providers in

India, surged over 4 percent in morning trade today after its parent Bharti Airtel, India's
largest telecom player, entered into an infrastructure-sharing deal with the telecom arm
of Reliance Industries, creating a somewhat unlikely alliance between two rival groups.
The deal provides Bharti Infratel's telecom towers business with a potentially lucrative
new client in Reliance Jio, while allowing Ambani to develop his new telecom venture
without having to build expensive infrastructure on his own. So Reliance Jio and Bharti
Airtel will now have cellular networks across all the 22 circles in India. The arrangement
is critical as it could mark the entry of Mukesh Ambani into the arena of voice telephony.
The Centre is planning to conduct 2G spectrum auctions in January and there is a
strong possibility that Reliance Jio will be the latest entrant to bid for it.
Last week Kumar Mangalam Birla, chairman of Idea Cellular, articulated the fears of the
industry when he told The Economic Times that The entry of Reliance in the telecom
space will cause some amount of anxietythis is something that could be a potential
game changereverybody in the industry is waiting to see what happens. As Firstpost
reported earlier, the deal, which is even bigger than the infrastructure sharing pact
Reliance Infocomm has signed with Anil Ambani's Reliance Communications, is

unprecedented. It will mean sharing of infrastructure for a whole range of telecom

services and that too across the country.

Here is all you need to know about the deal:

1. Bharti Airtel is India's India's leading mobile group by revenue, while Mukesh
Ambani's Reliance Industries is soon to re-enter India's fractious telecom market by
launching a new superfast "fourth generation" business, known as Reliance Jio. The
deal between the two will give Reliance Jio, pan-India access to Bhartis nationwide
infrastructure while giving Bharti access to the optic fibre capacity created by Jio in
future. In other words, the deal will help Reliance launch various services faster and
since Reliance will pay to use Bharti's infrastructure, it would give the debt-laden Bharti
much needed cash. "We believe this is a significant development as it gives Reliance
JIO access to Bhartis extensive infrastructure and indicates progress towards Reliance
JIOs launch which could be disruptive for the sector," said Motilal Oswal. The deal with
Reliance Jio is likely to improve tower utilisation of Bharti Infratel and increase its rentals
per tower. According to Ankit Somani of Angel Broking, the deal will lead to better cash
flows for Bharti Airtel and higher tenancy ratio for Bharti Infratel.
2. The two companies will share inter and intra-city optic fibre network, submarine cable
networks, towers and internet broadband services and the arrangement may be
extended in future to roaming services on 2G, 3G and 4G platforms, and any other
mutually benefiting areas relating to telecommunication.
3. The cooperation is aimed at avoiding duplication of infrastructure, wherever possible,
and to preserve capital and the environment. This will also provide redundancy in order
to ensure seamless services to customers of the respective parties. Bharti and Reliance
Jio are already in an agreement under which Bharti had provided capacity on its i2i
submarine cable to Reliance Jio. This network connects India to Singapore and is
wholly owned by Bharti. Under the deal, Reliance Jio will have access to a dedicated
fibre pair on the network.
4. Reliance Jio Infocomm is the only company which has pan-India airwaves that can be
used for 4G services very high speed wireless broadband services) but is yet to begin
services. It has begun testing process but there is still now word on whether it will also
offer voice along with high speed data on its 4G network and by when will roll out begin.
Whereas Bharti has already gained first mover advantage by launching services in
some circles and is now planning to extend this, possibly to voice in Bengaluru. Airtel
offers all kinds of telecom services, include 4G mobile broadband. Bharti in October
bought out Qualcomm Inc's stake in a 4G broadband joint venture to take full control.

5. The financial details of the agreement were not disclosed, but an identical statement
by both companies said the pricing would be at "arm's length, based on prevailing
market rates".
6. According to a report in the Times of India, the deal will allow Bharti to ride on
Reliance's 4G network to offer roaming facilities to users. While Reliance Jio has a panIndia licence for 4G services, Bharti has permits only for eight circles. However, lower
operating costs now possible through the deal may even prompt Ambani to offer dirtcheap tariffs on broadband -- similar to what he did during his initial foray into the
telecom space in 2003 at rates which changed the market dynamics at that time.
7. The latest deal is far bigger than than the $2.1-billion pact Ambani announced in June
with his younger brother Anil Ambani to share telecom tower infrastructure, cementing a
reconciliation between the once-warring siblings. A wider agreement between Bharti
and Reliance Jio may prevent further cooperation between the Ambani brothers and
restrict the potential benefits to RCOM, which was counting on the deal with Reliance
Jio to bolster its balance sheet. However, according to a report in the DNA, Reliance
Jio will rent 2,000 national towers from Bharti and use about 8,000 km of inter-city and
intra-city optic fibre belonging to Bharti. This can be seen as a filler for the areas where
Reliance Communications is not present and not overlapping with RCom.

Read more at:

http://www.firstpost.com/business/amabni-mittal-spat-over-decoding-bharti-reliance-deal1280841.html?utm_source=ref_article
http://economictimes.indiatimes.com/articleshow/27197382.cms?utm_source=contentofinterest&utm_medium=text&u
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Assignment:
1. Perform a fitness tests on the Strategic Alliance from Airtels point.
2. Comment on the alliance type and the prospects for Reliance.