The board of Reliance Jio, a subsidiary of Reliance Industries Limited (RIL), on Tuesday approved a scheme to hive off the fibre and tower businesses into separate companies. Analysts feel this would provide a better leverage to raise funds with support from parent RIL, especially as the fibre business capex would be top loaded.
“The board of directors of the company, at its meeting held on Tuesday, accorded approval to a scheme of arrangement for the transfer of its fibre undertaking, on an ongoing concern basis, to another company and a scheme of arrangement for transfer of its tower undertaking, on an ongoing concern basis, to another company,” the firm wrote in an exchange filing.
The company had announced in December last year that it would take over Reliance Communication’s towers and other related infrastructure for Rs 180 billion.
Hetal Gandhi, a telecom sector expert and director (research) at CRISIL, felt this was part of all players divesting tower and fibre assets into separate firms and monetising them. “It could mean two things for companies reeling under high debt — an opportunity to liquidate or monetise assets to reduce debt. Or for others, an opportunity of leasing/sharing this network with other players at a price,” she said.
Fiberisation levels in India are less than 30 per cent today. For launching the next round of technology, that is, 5G – a 70 per cent fiberisation is needed. Gandhi pointed out that most developed countries have been over 80 per cent of fiberisation.
Last month, Jio’s rival Vodafone Idea said it planned to demerge its fibre infrastructure business, transferring such assets to a subsidiary Vodafone Towers Ltd (VTL).
Another analyst pointed out that of the Rs 4 trillion investment announced by Reliance Jio, about Rs 1.2 trillion is estimated to be for the fibre business and, as such, this fibre business capex is top-loaded. “Hiving off the fibre business into a separate subsidiary will help raise funds before the ambitious Gigafibre launch.
As such, the company has paid higher price for laying down fibre network in cities like Mumbai (around Rs 40-50 million per km) against a national average of Rs 400,000 per km,” he said, wishing to be anonymous. Jio is gearing up for its GigaFiber launch, fibre-to-the-home (FTTH) gigabit broadband services that will connect 1,100 cities across the country.
A CRISIL report said the number of telecom towers of the entire sector in India grew to a total of 463,000 (excluding telcos’ captive towers). It is expected to reach 490,000 towers by fiscal 2019 amid buyout of standalone towers of Vodafone and Idea by ATC besides construction of new towers. However, after fiscal year 2019, net tower additions will be 8,000-10,000 per year over the next four-five years, much lower than in the past five years. The valuation of tower firms also fell, as the number of operators dropped drastically to just three main players.
According to analysts, the rural areas will drive the wireless subscriber growth leading the telcos to add towers in these areas. Player strategy on having captive towers and their investment capability would decide share of standalone tower firms in total additions.
Currently, about 8-10 per cent of towers are captive in nature (as in the case of Jio). “We believe the trend of Reliance Jio setting up its captive towers would also add to the pressure of telecom tower operators exerting pressure on rental growth,” noted CRISIL.
Industry watchers are awaiting clarity on how tower and fibre firms will engage with the assets that the company is getting from Anil Ambani’s Reliance Communications.
The deal, announced in December 2017, includes over 1,78,000 kilometres of fibre and 248 media convergence nodes. According to analyst estimates, Reliance Jio has 160,000 captive towers or wireless telecom poles (which cannot be shared on rental basis).
Already, Vodafone Idea has approved fund raising of Rs 250 billion and planned asset monetisation of Indus Towers’ stake and fibre assets – which it believes will be more than sufficient to meet cash flow gaps.