India's two Reliance firms to share towers for 4G

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India's two Reliance firms to share towers for 4G

Closer cooperation between the formerly hostile companies could accelerate TD-LTE roll-out as government aims to ease M&A rules

By CAROLINE GABRIEL

Published: 4 November, 2011

READ MORE: M&A | India | Regulator | LTE

One of India's most bitter corporate feuds, between the Ambani brothers who control the two Reliance companies, may be ending, as the firms look to share infrastructure. Reliance Industries, which holds a national 2.3GHz BWA licence via its Infotel subsidiary, is reported to be planning tower sharing deals with cellco Reliance Communications, in order to bring TD-LTE to market more quickly and cost effectively.

The two Reliance entities were formed when Mukesh and Anil Ambani fell out in 2002 on the death of their father. Mukesh's Infotel company majors on oil and gas and some heavy industries as well as some telecoms equipment, but recently re-entered the wireless services space with the Infotel buy. That sparked rumors that it might engage in network sharing, or even merger, with Reliance Communications, which has always been focused mainly on its cellco business.

RIL's reluctance to invest in its own tower infrastructure for its TD-LTE plan may be the catalyst for such a reunion, as it looks to third party tower owners including RCom. Joint activities will be helped by the brothers agreement, last year, to cancel a pact which prevented the two firms from competing in one another's markets. As well as speeding RIL's roll-out, a sharing agreement could bring RCom valuable new funds to reduce its $7bn debt. Last year, it was forced to call off a $9bn deal to sell its towers to GTL Infrastructure.

Also in India, the government says it will introduce its new rules, to ease M&A among cellcos, by next month. This is likely to spark a wave of acquisitions, and reduce the huge number of mobile licence holders to a level which would encourage viable competition - and therefore investment in new networks. There are currently 15 cellcos battling for subscribers amid the lowest ARPUs and margins on earth and the market has been further hit this year by corruption scandals and tough government restrictions on cellcos' ability to procure equipment abroad, especially from China.

The Department of Telecom then hopes its regulations would gain cabinet approval by the end of the year. In an interview, secretary for telecoms R Chandrashekhar said: "It is a priority for the government to remove roadblocks to consolidation, which currently exist. Every company can plan their long-term investments and their business strategy knowing that this is the direction in which the country will go."

"Currently, we've got too many players," fund manager Mahesh Patil of Birla Sun Life Asset Management told Bloomberg. "Getting some clarity on mergers and acquisitions will be a win-win for the sector. Incumbents will be able to consolidate their position and struggling marginal players may find an exit option."

Currently, each of the 22 telecoms operating regions or circles must have at least mobile carriers in addition to the state-owned players (MTNL in Delhi and Mumbai and BSNL everywhere else). The combined market share of a merged entity cannot exceed 40% and a cellco cannot own more than 10% of another operator in the same circle. Such regulations "result in fragmentation of the market, more so in terms of spectrum, and denies companies and consumers the benefits of more efficient operations," Chandrashekhar said.