Hard bargaining ahead for Reliance Jio, RCom

Jio needs support of lower frequency bands such as 800 Mhz or 1800 Mhz to roll out pan India 4G services

Telecom sector analysts said the recent central government decision on easing of norms to share or trade under-utilised spectrum could make Reliance Jio go for hard bargaining with potential seller Reliance Communications (RCom).

For, the rules have made spectrum trading costlier. An operator may now share or trade its under-utilised spectrum obtained via auction. For radio waves allocated before the auction process began, companies would have to pay the government a market-linked price to make it tradable, a process known as ‘liberalisation’.

RCom would have to pay the government nearly Rs 7,500 crore to liberalise its 800 MHz band it has in 19 circles (the country is divided into 23 circles), based on sector estimates. Its other licences it had acquired by auction and it does not need to pay the differential price.  
 

SPECTRUM TRADING

• Govt rules have made spectrum trading costlier
• RCom would have to pay the government nearly Rs 7,500 cr to liberalise its 800 MHz band it has in 19 circles, based on sector estimates
• Its other licences it had acquired by auction and it does not need to pay the differential price
• Once it makes the radio wave licences tradable, RCom has to sell or trade it with interested parties
• One per cent of this financial transaction would go to the govt

Once it makes the radio wave licences tradable, RCom has to sell or trade it with interested parties, with one per cent of the financial transaction going to the government. Also, any financial deal would mean higher annual payments for spectrum usage charges, the rules say.   

“Initially, I believe Reliance Jio would go for the circles where it does not have 800 MHz. It will make a hard bargain, since the licenses are for a limited period and are costly,” said Vivekanand Subbaram, telecom analyst with HDFC Securities.

Reliance Jio currently possesses licences of 2,300 MHz in all circles, 800 MHz in 10 circles and 1,800 MHz in 14 circles. It needs support of lower frequency bands such as 800 MHz or 1800 MHz to roll out pan-India fourth generation (4G) services, as higher frequency radio waves do not penetrate walls and could disrupt calls, though data transfers are faster in these.

Jio has a spectrum sharing pact with RCom for 800 MHz bands in 10 circles. According to reports, it is in the process of signing a pact to use its spectrum in other circles, as it has plans to launch 4G by December.

The government’s decision to allow trading of radio frequency licences was welcomed by the telecom industry.

For, it means they do not have to wait for another auction, where prices usually jump much higher. However, any interested party willing to buy spectrum from RCom could use it for only six years, instead of the 20-year period they'd get in an auction — its 19 licences expire in 2021.

“Spectrum trading will not alter the validity of the traded block of spectrum. We emphasise on this aspect primarily to caution investors on being careful about ‘value upside from spectrum trading’ computations for RCom,” Kotak Institutional Equities said in a note to investors.

Also, after liberalising the spectrum, RCom would have to deploy new technology to operate in the GSM band, as it currently operates these frequencies for CDMA mobile technology, which means additional financial burden for potential buyers.

“Spectrum are limited assets; it will not come cheaper for anyone,” said Rishi Tejpal, analyst with technology advisor firm Gartner.  

Both Reliance Jio and RCom declined to comment for the report, saying they did not respond to market speculation.