Why Rivals Will Line Up At RCom’s Spectrum Fire Sale

Reliance Communications Ltd.'s plan to sell spectrum to pare debt is expected to draw rivals as they look to beef up services in the world's second-largest mobile market.

The Anil Ambani-led telecom operator is looking to offload assets to repay lenders after its merger with Aircel Ltd. failed. The company recently defaulted on its bond payments and could be drawn into insolvency proceedings with the China Development Bank filing a petition in the National Company Law Tribunal. The spectrum sale may help the telecom company cut debt by Rs 19,000 crore — gross value of spectrum according to the company press release — about 40 percent of its total burden.

RCom owns 262 megahertz of airwaves across four bands, including the 800 MHz frequency that's in demand to offer 4G services. About a third of its holdings are administered - in the 1,800 MHz band - or allocated without bidding and can't be used for 3G and 4G services. The higher the frequency, the lower is the signal strength as the wavelength of the network is small.

India has 118 crore mobile users—second only to China but more than the U.S., Brazil, Russia and Indonesia put together. Services can be patchy as users lose connectivity frequently during travel. More so for data-heavy 3G and 4G services. RCom's spectrum could help operators strengthen their networks.

BloombergQuint explores who stands to gain the most from buying RCom's airwaves…

Reliance Jio

Mukesh Ambani's Reliance Jio Infocomm Ltd. currently has the rights to use the spectrum owned by his younger brother's company as per an earlier agreement. Now that it's on the block, Reliance Jio could be interested in the 800 MHz band which has a longer validity until 2033.

It would serve Reliance Jio better to acquire airwaves in the 800 MHz band because it's rolling out 4G services on that frequency, Nitin Soni, director at Fitch Ratings, said.

Bharti Airtel

Bharti Airtel has limited spectrum in the in-demand 800 MHz band that India's largest telecom operator can use to offer 4G LTE (long-term evolution) services.

Bharti Airtel recently got airwaves in the 800 MHz band through its acquisition of Tata Teleservices' business. Most of it is administered and the Tata Group company had acquired spectrum through auction only in five circles.

Fitch's Soni said Bharti Airtel may not be interested given that it's rolling out 4G on 1,800 MHz and 2,300 MHz frequencies.

However, using 800 Mhz band spectrum could lead to lower infrastructure cost for India's largest telecom operator.

Moreover, lower frequency spectrum means greater coverage and lower cost of deploying infrastructure. Ideally, companies would prefer lower 800 MHz spectrum band for providing services, said Mahesh Uppal, telecom analyst and director of consultancy firm Com First India.

Vodafone India & Idea Cellular

The combined entity after the merger will hold close to 1,849 MHz across five different bands - the largest holding by an operator and sufficient to provide services. Yet, it may require airwaves in the 900 MHz frequency owned by RCom in Himachal Pradesh to improve its 4G services in that circle.

Vodafone India and Idea Cellular together hold only 0.6 MHz liberalised spectrum in the 1,800 MHz frequency to deliver 4G services in Himachal. In comparison, RCom has 5 MHz of liberalised spectrum in the 900 MHz with a validity till 2035.

Spectrum sale will make RCom a mobile virtual network operator—which leases wireless capacity from another carrier at wholesale prices and resells it to subscribers at lower retail prices under its own brand.

While Vodafone India declined to comment, Idea Cellular, Reliance Jio and Bharti Airtel have not yet responded to email queries.