Reliance Jio Infocomm and Bharti Airtel have signed a definitive agreement, for Jio to acquire the right to use spectrum in the 800 MHz band in Andhra Pradesh, Delhi, and Mumbai circles through spectrum trading. Airtel will transfer its 800 MHz spectrum in Andhra Pradesh (3.75 MHz), Delhi (1.25 MHz) and Mumbai (2.50 MHz) to RJio. The aggregate value for the right to use this spectrum is ₹1,497 crore. In addition to the upfront payment of ₹1,037.6 crore, RJio will take over Airtel’s future spectrum liabilities of ₹459 crore.
The deal will enable Reliance Jio to access a new spectrum in the three circles. In AP and Delhi, RJio will be able to take its holding in 800 MHz band to 10 MHz each. And in Mumbai it will enhance its holding in the 800 MHz band from 12.5 MHz to 15 MHz.
For Airtel, 800 MHz was residual spectrum in these three circles and lying idle. It has traditionally focussed on the 900 MHz band.
The trading agreement is in accordance with the Spectrum Trading Guidelines issued by the Department of Telecommunications and is subject to the requisite regulatory and statutory approvals.
GOPAL VITTAL, MD AND CEO (INDIA & SOUTH ASIA, BHARTI AIRTEL). “The sale of the 800 MHz blocks in these three circles has enabled us to unlock value from spectrum that was unutilised. This is aligned to our overall network strategy.”
CREDIT SUISSE. “Airtel had got the above spectrum in 800 MHz band from the Tata Teleservice acquisition, in 2019, and these spectrum bands were largely unused as the company had an existing 900 MHz network in Andhra Pradesh, New Delhi and Mumbai service areas. Hence by selling the spectrum to Jio, Airtel is able to monetise the unused spectrum assets.
For RJio, the company is able to get additional blocks of 800 MHz spectrum, at 47 per cent discount, from government auction reserve price (pro-rated for remaining period of the license). So, RJio now has contiguous block of 2×10 MHz of 800 MHz spectrum each in Andhra Pradesh and Delhi service areas and 2×15 MHz in Mumbai service area.
In our opinion, the agreement also highlights that Jio and Airtel can work together for a mutually beneficial cause, suggesting slight moderation of competitive dynamics. Airtel is our preferred pick in the sector as we see it as a beneficiary of either outcome—of price hike in the near term or from continued market share gains from VIL in case of delay in price hike.”
UBS. “Bharti Airtel had acquired these spectrum from Tata and remained unutilised. Bharti is therefore able to unlock value, and there is no strategic opportunity lost for the company, while this deal strengthens RJio’s footprint in these circles. The operator has now topped up its holding in these circles to 10MHz, 10MHz and 15MHz respectively, for a total consideration of Rs 14.97 billion. With remaining validity of 14 years, the implied cost/MHz/annum comes to Rs 140 mn, a 50 percent discount to the auction price. Jio has therefore not only built up 10-15 MHz blocks in these key circles, but has potentially saved $400 million.”
MORGAN STANLEY. “RIL’s spectrum buy highlights its continued focus on subscriber market share. We assume RIL’s subscriber net adds improve after slowing down in the past few months and lower churn as reinstated supply of Jio-phone gains subscriber traction. We assume 40 million net adds in FY22 compared to an estimated 30 million net adds in FY21.”
On the release of this news, the shares of Reliance Industries and Bharti Airtel gained over 2 per cent each.