Ambanis sign first deal since split

Last Updated: Wed, Apr 03, 2013 06:02 hrs
A shareholder speaks on a mobile phone while attending the annual general meeting of Reliance Capital in Mumbai

It's the first business deal between the Ambani brothers since their split in 2005. Mukesh Ambani's Reliance Jio, which will offer 4G services, today signed an agreement with Reliance Communications (RCom), controlled by his younger brother Anil Ambani, to use the latter's fibre-optic network for a one-time payment of Rs 1,200 crore.

The deal is non-exclusive. This implies, RCom is free to offer fibre optics to other firms, too, while Reliance Jio can avail of other firms' infra. Though the size of the agreement is small, it carries a symbolic significance because, RCom says, the deal is the first in a series of agreements between the two groups, raising expectations of further action in the near future. Though Reliance Industries Ltd (RIL) did not comment, it forwarded RCom's announcement to stock exchanges.

The brotherly spirit of cooperation makes business sense, too. According to the agreement, Reliance Jio Infocomm will utilise multiple fibre pairs across RCom's 120,000 km of inter-city fibre-optic network. This means Reliance Jio will pay around Rs 1 lakh for every km of the network, which is close to a tenth of the cost it would have had to bear to put up its own fibre.

This will also help Reliance Jio roll out the network faster, as the company is expected to launch its first-phase services in Delhi, Mumbai and Jamnagar by the end of this year. The two will set up joint working teams to implement the deal.

The long-speculated agreement was greeted by the Street, with RCom's stock zooming 10.86 per cent to Rs 63.30, the biggest gain since July 2011. RIL's went up 2.03 per cent to close at Rs 793.95.

The payment to be made to RCom will be in phases, depending on how much of the fibre-optic network is handed over to Reliance Jio for use; it does not have to pay any additional money for network upgrade. As part of the deal, RCom will also have the right to use the network that will be built by Reliance Jio in many parts of the country; for this, the terms have yet to be decided.

The two brothers had signed a non-compete agreement as part of their settlement not to get into each other's businesses. That ended in May 2010 and Mukesh Ambani entered the telecom sector a few days later, after buying over 95 per cent stake in Infotel Broadband.

Sources said the two firms were also negotiating for a similar deal to share tower infra. RCom's subsidiary Reliance Infratel has over 50,000 towers across the country. Sources in the know say this deal could also entail RIL picking up a minority stake in Reliance Infratel.

RIL has already finalised its plans to build 14,000 to 15,000 towers in Delhi, Mumbai and Jamnagar as part of its first phase of launch.

Experts also said Reliance Jio, which had spectrum to offer only 4G services, could tie up with RCom for 2G voice and 3G. Though Reliance Jio had been allowed to offer voice with its 2,300-MHz spectrum, most equipment makers said its quality was still suspect. However, such an alliance would depend on whether the government changed the policy to allow spectrum sharing or inter-circle roaming pacts.

Analysts said the deal would help RCom, which is deep in debt. "It's a big positive for RCom. It was seen as an untouchable and no one was hiring its passive infra. Now, it will be able to monetise its assets," said S P Tulsian, a market expert.

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