India’s Largest Integrated Telecommunications company Airtel and Reliance Jio have announced a comprehensive arrangement to share infrastructure created by both companies, including optic fiber network, towers, submarine cable networks and internet broadband services. The agreement can be extended in the future to cover roaming on 2G, 3G and 4G networks. Airtel’s infrastructure elements reduces RIL-Jio’s time to market its 4G services considerably. Airtel reeling under African Losses would want to lease out excess capacity to a Pure-Play 4G Player like Jio which probably has realized that it has no business case even for the next few years.
How Airtel – Reliance Jio Deal Benefits the Industry & Consumer ?
Airtel would not be keen to open its infrastructure at competitive rates to a player it believes will be disruptive to its bread-and-butter retail wireless business. Reliance Jio’s opex on the infrastructure elements covered by the agreement now cannot be lower than Airtel’s – even parity would demand massive Airtel like scale. This has implications for Reliance Jio’s ability to be price-disruptive in the market.
Impact of Airtel – Reliance Jio Deal on Bharti Infratel
The agreement immediately opens up incremental tenancy potential for Bharti Infratel as Reliance-Jio rolls out its nationwide 4G network over the coming years. These tenancies, at the current average rental reported by Bharti Infratel (the press release categorically states that the pricing under the deal would be at prevailing market rates), could mean an incremental annual revenue and EBITDA.
Negative Impact on Reliance Communications
Reliance Jio managed to squeeze a couple of sweet deals from the distressed Reliance communications first. This deal should curb expectations of further infrastructure-leasing deals between RCom and Reliance Jio.
In a nutshell, we see a different competitive scenario emerging in the next few years in the industry – intense, yet healthy, in a far more consolidated market. We also expect Favorable Regulatory as two deep-pocketed competitors have decided to collaborate, atleast for now. We can now expect more deals between Incumbent and a Challenger, for example – Aircel & Vodafone.
It benefits the Consumers as we can expect to have ubiquitous coverage of at least 2 Mbps broadband in most parts of towns, marks significance IMO, when the US and Korea have graduated to Gigabit broadband networks. Right of Way costs for laying fiber have spiraled in the last few years and a deal of this nature is a win-win for all.