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Reliance Communication’s Chief Executive Officer Gurdeep Singh said that the tower deal with Reliance Jio will substantially improve its ability to compete in the market.
“Increased tenancy reduces our cost of operations, pushes up margins and improves EBITDA. This improves our ability to service debt giving us more leg room to compete in the market,” Gurdeep told Business Line .
RCom’s tenancy per tower is expected to go up from 1.8 at present to 2.8, making it among the highest in the industry.
Two factors
But analysts said that RCom’s actual revenue will depend on two factors — how soon Reliance Jio will roll out services and the duration of the tower sharing deal. Abhishek Singhal of Macquirie Capital Securities said in an industry report, “Assuming that the agreement’s tenure is in line with RIL’s remaining life of 4G asset (which is 16–17 years) and RIL starts using all the sites within the next one year, RCom will get rental income of Rs14,000–15,000 per tower per month.” “Though this is additional income for RCom and will allow it to reduce its net debt, this arrangement is at a significant discount to industry leaders,” the report added. Indus and Bharti Infratel realise average rental income of Rs 32,000–35,000 per tower per month.
Analyst at Citi Research said the cash inflow from the deal will have only a marginal impact on RCom’s leverage with a yearly cash inflow of Rs 500 crore (net of tax) versus net debt of Rs 38,000 crore.
“Benefit from the deal is only likely to begin end of financial year 2015, given Reliance Jio’s commercial launch is still 6-9 months away,”
But this deal combined with the earlier agreement to offer optical fibre to Reliance Jio will no doubt give RCom a lease of life. Alok Shende, Founder and Director, Ascentius Consulting said, “At a time when no new tower deals are happening, this is a great boon for RCom.”
4G juggernaut
For Reliance Jio, the tower deal would speed up its plans to roll out broadband services based on fourth generation technologies.
However, the company would need many more towers for pan India coverage. That’s because RCom’s towers have been designed for mobile services on 800 MHz and 1800 MHz frequency band while Reliance Jio has spectrum in 2300 MHz band.
“This would increase Relaince Jio’s requirement for towers by a factor by of 1.5 times,” said Shende. That’s good news for other tower companies that can hope to get business from Reliance Jio.
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