RCom likely to shut more 2G, 3G networks, sell the spectrum

Reliance Communications, which announced it was abandoning plans to merge with Aircel Cellular, indicated that it would focus on two segments – 4G and wired. Within wired, it would focus on enterprise services.

The disclosure indicates that the company, — which recently shut down its GSM network in Gujarat — could close more and more 2G and 3G networks to save costs.

“RCom’s future growth strategy (will be) focused on higher growth, higher margin business-to-business, non-mobile business,” the company said, while adopting a “4G focused mobile strategy.”

It also said this shift would enable it to sell more spectrum and reduce its debt.

“The Company has valuable spectrum across 800/900/1800/2100 Mhz spectrum bands aggregating 200 Mhz, valued at over Rs 19,000 crore for the balance of validity period, based¬†on last auction pricing. The Company will evaluate opportunities for monetization of the same¬†through trading and sharing arrangements,” it said.

It was not immediately clear whether the company will sell crucial low-band (800 MHz) 4G spectrum, or whether it will only get rid of higher bands.

The company has spectrum in three bands — 1800 MHz, 2100 MHz and 800 MHz. All three can be used for delivering 4G services.

It will be easier to sell the 1800 MHz and 2100 MHz spectrum as any of the company’s rivals — Bharti Airtel, Vodafone, Idea Cellular or Reliance Jio — can buy it and add it to their networks.

However, it will be more difficult to sell the 800 MHz spectrum — also known as CDMA spectrum — as there is only one player who has 4G operations in this band — Reliance Jio.

Others, such as Bharti Airtel, could enter this band if they are able to get at least 5 MHz of spectrum.

However, it remains to be seen if RCom will be able to sell 5 MHz of spectrum in the band without violating its network sharing agreement with Reliance Jio.

The company has a sharing agreement with Jio under which it is obligated to provide some amount of spectrum (estimated to be 2-4 MHz in each circle) to the Mukesh Ambani company.

This spectrum is combined with chunks held by Jio to make a single 5 MHz block which today forms the core of the Jio network.

Since RCom never disclosed how much spectrum it was selling to Jio in each circle, it is not clear whether the company still has 5 MHz or more of surplus spectrum that it can sell in the lucrative 800 MHz band.

Another possibility is a third party like Bharti Airtel buying 2.5 MHz from RCom and the remaining 2.5 MHz from Tata Teleservices, which has been trying to reduce its own debt for some time.

While a merger of RCom and Tata Teleservices too could have been a possibility, the high-levels of debt on both companies’ balance sheets make such a deal less likely.

For now, going by the company’s statement, it looks like the Anil Ambani firm will be slimming down its operations and is likely to shut down all its independent base stations and network operations, instead relying fully on Jio for its infrastructure.

This will help it reduce its network operating costs drastically, helping cut mounting losses.