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How Reliance Jio deal can win RCom a ‘free’ 4G network

tuneReliance Communications is fast emerging as the biggest beneficiary of the approval of spectrum sharing guidelines, though Vodafone and Bharti Airtel — which obtained 3G spectrum earlier this year — could also benefit big time.

According to a report in the Economic Times, Reliance Jio and Reliance Communications will take advantage of the new rules to pool their spectrum in the highly penetrative 800 MHz band for a joint 4G play.

The combined network will be jointly owned and operated by both companies.

The main advantage for RCom in all this is that since Reliance Jio has already set up a network or is in the process of setting up a 4G network, RCom does not have to set one up itself.

Instead, it can just share its spectrum with Jio, and Jio can include the spectrum in its network.

Including an extra carrier (spectrum) will not require Jio to double its towers or base stations. As a result, RCom practically gets a free 4G network thanks to this arrangement.

This will save RCom thousands of crores in network deployment costs. Jio is estimated to be spending around Rs 1 lakh crore to set up a network of around 75,000-80,000 4G towers, out of which most of the money is for the physical infrastructure.

(This strategy can also be adopted by Vodafone and Airtel, which have bought 3G spectrum recently, to roll-out their new networks using network sharing and without investing in new infrastructure.)

However, such an arrangement with Jio would be restricted to the ten circles where Jio won 800 MHz spectrum in the last auction.

Of these ten circles, only five – Mumbai, Madhya Pradesh, Bihar, Haryana and Uttar Pradesh East are substantial.

The other five circles include Assam, Himachal Pradesh, Jammu & Kashmir, Odisha and North East.

It should be noted that spectrum sharing in these ten circles is not being done to enable the two companies to launch 4G. In fact, both companies can launch 4G services without spectrum sharing also.

But if they share their spectrum into a single network, they don’t have to duplicate the on-the-ground infrastructure such as towers and can simply double the capacity of the network being built by Reliance Jio by adding RCom’s spectrum.

Jio and RCom will pool their 800 MHz spectrum to create two LTE carriers of 5 MHz each in these places – thus doubling Jio’s network capacity.

MTS ANGLE

However, since RCom only has a total of 5 MHz with it, this arrangement would require that RCom find a partner to shift its CDMA subscribers to.

The only exceptions to this requirement are Gujarat, Himachal Pradesh and North East, where RCom has enough surplus spectrum to accomodate its CDMA subscribers.

This is where MTS comes in. RCom and MTS (or Sistema Shyam Teleservices) are already in talks for merging their operations.

In fact, it would seem that this would be a precondition for RCom to be able to free up its own spectrum for full sharing with Reliance Jio.

RCOM’S BIGGER OPPORTUNITY

However, this is not the only opportunity for RCom in 4G space. Once the MTS deal goes through (or even without it), RCom can have a combined 4G network using MTS’ spectrum in another nine circles – taking its total coverage to 19 circles.

These nine circles are Delhi, Gujarat, Karnataka, Kerala, Kolkata, Rajasthan, Tamil Nadu, UP West and West Bengal.

Once that is done, RCom-MTS would easily be the player with the most extensive 800 MHz 4G network in India. In comparison, the coverage of Reliance Jio in the 800 band would be restricted to the less lucrative markets mentioned in the beginning of this article.

The advantage for RCom is that the deals with Reliance Jio and MTS can also be done even without a merger with MTS with the help of intra-circle roaming arrangements and spectrum sharing. However, spectrum sharing would require RCom and MTS to have their spectrum in a contiguous block.

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