Last Week, Reliance Jio Infocomm [RJI] and Reliance communications announced Inter-City Optical Fiber sharing Deal. Reliance Jio Infocomm plans to launch a nationwide LTE network following its spectrum win in mid-2010.
Citigroup analysts Wrote,
The Rs12bn cash inflow would only marginally reduce RCOM’s net debt, which stood at Rs373bn at the end of 3Q’13. However, the annual usage charge as well as potential tower sharing with RCOM following the fiber deal would help accelerate the deleveraging, which is critical for the stock re-rating.
Ambit Security Analysts Wrote,
the bottlenecks that Jio will need to overcome to gain widespread acceptance and be considered as a genuine threat for the incumbents. We reiterate our viewpoint but it is likely that Jio’s entry could cause market disruption, especially at a time when telcos are steadily realising higher RPMs. Issues which may hamper Jio range from a poor device ecosystem to poor spectral efficiency of the 2.3GHz band
JP Morgan Analysts think,
If Reliance Jio enters into more significant further agreements to use RCom’s tower assets or buys out a portion of its tower or other infrastructure assets, it could be a significant positive for RCom. We reiterate that deleveraging remains the tactical trigger for RCom’s stock.
Morgan Stanley Wrote,
We believe that this deal is a win situation for both RCOM and RIL, as it will result in optimal utilization of RCOM’s existing untapped infrastructure, avoiding any duplication. RIL will avoid huge capex, as it will get access to readily available telecom infrastructure.
Goldman Sachs Wrote
We consider the deal to have strategic merit for RCOM as it opens up further revenue opportunities and hence see room for Bloomberg consensus upgrades. There is limited clarity on how much RCOM will earn upfront and the timeline for recognition of the Rs12 bn. We note that Rs12 bn translates into Rs 6/share for RCOM; the stock was up Rs 6 after this news, implying the market is already fully valuing this opportunity for RCOM.
The deal is, in our view, a sign that RCOM may ink a tower sharing deal with RJI for leasing slots on its over 50,000 telecom towers across India. In the wake of the government’s recent inclination to allow even 4G operators like RJI to operate voice services apart from mobile data services, this would necessitate additional capacity for RJI and could lead to expansion of the scope of any potential tower sharing deal signed with RCOM.