Widening The G-Pool

Politics, it has oft been noted, makes strange bedfellows. India’s hyper-competitive telecom market is no different. Why else would long-time rivals Mukesh Ambani and Sunil Mittal join hands to share infrastructure? That was the question on everyone’s mind when last week, Mittal’s Bharti Group and Amb­ani’s Reliance Jio Infocomm inked the most definitive infrastructure-sharing agreement in India’s telecom history.

Earlier this year, in April, there was a tie-up between the two conglomerates to share Bharti’s i2i undersea link connecting India with Singapore. But the new deal is far bigger and has taken many in the industry by surprise. It is one thing that it comes from two groups that have been at each other’s throats (in the marketplace, for starters) for the past one-and-a-half decades. It appears even more intriguing when one considers that Jio gets much more benefits from the deal that does Bharti. What’s going on?

Bharti Group’s first run-in with Reliance was 12 years ago, when Mukesh Ambani, in the days of the unified Reliance Group, launched Reliance Infocomm. It offered dirt cheap telecom service with bundled handsets in face of Bharti’s rather expensive mobile service. The two faced off next when Reliance launched its retail initiative around the same time Mittal made a grand entry in collaboration with WalMart (which has recently ended in rather dubious circumstances).

Finally, when Mukesh Ambani re-ent­ered the telecom arena by announcing his 4G plans in 2010, it sparked off talk of another (and very real) confrontation. So what does Reliance Jio get out of this deal? A lot, actually. To start with, it will have access to all of Bharti’s sub-marine cabling connecting India with the rest of the world. It will also ride on Bharti’s 1.75 lakh kilometres of inter- and intra-city, and long-distance fibre networks and have access to over 100 cities conne­cted by Bharti for wireless broad­band.

Plus it will have access to the all-imp­ortant mobile towers set up by Bharti. But for the active infrastructure—including the base transceiver stations (BTSS) used for actual mobile traffic—Jio will have access to everything Bharti has on ground.

This is contrary to the typical Reliance style of setting up and owning its infrastructure in whatever it sets its hands on. “Reliance may have realised that the telecom business has intense competition, is capital intensive and has no stability. So using existing infrastructure from others makes sense rather than investing in it,” says Jaideep Ghosh, partner, kpmg.

Against this, Bharti seems to be getting much less. It would get access to Reliance Jio’s pan-India 4G fibre infrastructure when it is completed and can also tie up for roaming in four 4G circles it has licences for and the ones it acquires. Reliance Jio is the only pan-India player in 4G.

What is there for Mittal in this deal anyway? Lloyd Mathias, director, Green Bean Ventures, says, “A lot of Bharti’s capacity is underutilised. Through the deal it will get some tenancy on its infr­astructure. This will help it contain debt and raise funds as (operations in) Africa is nowhere close to doing that.” Thanks to its acquisitions in Africa, the Bharti Group is now sitting on a debt of over Rs 65,000 crore and in the next 12 months, it will need anything above Rs 20,000 crore to feed investments beginning with spectrum auctions next January.

Will Bharti lose out when Reliance starts firing its services? Unlikely, as with 30 per cent share in the market, Bharti has a huge advantage. Even in 4G, it will be difficult for Jio to do well; keep in mind that 3G has largely been a failure in India.  So, all Jio can offer users is speed, as content is already ava­ilable in the current services. Jio’s play could be on price, despite the fact that all players are bleeding. Given that Reliance always shakes up the market when it launches a new service, this is going to be an interesting slugfest.