Airtel-RJio deal a win-win for both: Analysts

Mumbai, April 7

Bharti Airtel entering into a ₹1,037.6-crore spectrum trading agreement with Reliance Jio Infocomm (RJio) will be mutually beneficial to both the companies, even as it suggests a moderation in competitive dynamics of the telecom sector.

On Tuesday, Bharti Airtel entered into a spectrum trading agreement with RJio, under which it agreed to transfer the airwaves across three circles.

Read The Story: Big thaw: Airtel & RJio in ₹1,037.6-cr spectrum deal

“We note that 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,” according to a report by Credit Suisse.

“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). Further, RJio now has contiguous block of 2x10 MHz of 800 MHz spectrum each in Andhra Pradesh and Delhi service areas and 2x15 MHz in Mumbai service area,” it added.

The additional spectrum will help RJio add capacity in the three service areas (Delhi, AP and Mumbai), which account for 17 per cent of its gross revenues.

According to brokerage firm 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.

RJio, through this deal, has topped up its holding in these circles. With remaining validity of 14 years, the implied cost per MHz per annum comes to ₹14 lakh, a 50 per cent 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.

According to 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 Jiophone gains subscriber traction. We assume 40 million net adds in FY22 compared to 30 million net adds in FY21 (estimated),” it added.