Reliance, Bharti Airtel telecom deal: Here's what you should know
Conglomerate Reliance Industries and top mobile operator Bharti Airtel have agreed to share network infrastructure, as the old adversaries in India's crowded telecom industry set aside differences to save costs.
The companies, headed by longtime rival billionaires, undercut each other during Reliance's last foray into telecoms nearly a decade ago. Now they will work together as they move into data-driven telecommunication services.
Reliance's Mukesh Ambani, India's richest person according to Forbes magazine, and Bharti's Sunil Mittal, country's 10th richest, will continue to be rivals in the fast-growing retail market.
The agreement involves sharing inter- and intra-city optic fibre networks, submarine cable networks, communications towers and internet broadband services, and may extend to other areas of telecommunications, the companies said in a joint statement.
"With two prominent rivals co-operating and with infrastructure being shared, there should be cost savings," said Ambit Capital telecoms analyst Ankur Rudra. "It will lead to a better industry structure."
Mobile telephone network providers have been plagued by weak returns for years and face significant investment in fourth-generation services, which would have encouraged the pair to come together, said Rudra.
Reliance has spent billions of dollars to offer low-priced wireless broadband after winning a licence three years ago to provide 4G services across India.
It is working toward launching commercial services by signing a number of deals this year, including deals to share network and infrastructure with rival Reliance Communications, controlled by Mukesh's once-estranged younger brother Anil Ambani. It has also agreed to lease undersea cable capacity from Bharti.
Ten years ago, Mukesh Ambani transformed the telecom industry by offering cheap calls and handsets, hurting rivals including Bharti. Mukesh moved out of telecoms in 2005 after a split in the family empire.
Mukesh's second entry into telecom has fuelled concern of another price war which few players can afford, after a period of calm followed years of undercutting each other.
Entrenched but debt-laden rivals such as Bharti, Vodafone Group and Idea Cellular face a steep increase in the cost of radio spectrum as well as hundreds of millions of dollars in government fees due to regulatory upheaval, after a massive telecoms licensing scandal that came to light in 2010.
Bharti has been pushing to increase revenue from high-margin services. It launched 4G networks in some cities and intends to expand the services rapidly.
The deal with Reliance will help it and tower unit Bharti Infratel boost revenue by leasing out infrastructure. Bharti will also benefit from sharing Reliance's nationwide network, analysts said.
The companies did not disclose financial details of their agreement, but said pricing would be "based on prevailing market rates."
"The cooperation is aimed at avoiding duplication of infrastructure, wherever possible, and to preserve capital and the environment," the companies said.
Shares of Bharti Airtel closed down nearly 2 per cent whereas those of Bharti Infratel rose 2.9 per cent on the BSE. Reliance Communication and Idea Cellular each ended down about 3 per cent. Reliance Industries shares ended down 0.2 per cent.
Copyright Thomson Reuters 2013
