Analysts see hard bargaining in Reliance Jio-RCom spectrum trading deal talks

Telecom industry analysts said the recent government decision for easing of norms to share or trade underutilised spectrum could make Reliance Jio go for hard bargaining with potential seller Reliance Communication (RCom) as the rules have made spectrum trading costlier.

According to the spectrum trading guidelines, a telecom operator can share or trade their underutilised spectrum obtained via auction. For radio waves allocated before the auction process was started, the companies would have to pay the government a market linked price to make it tradable, a process known as 'liberalisation'.

RCom would have to pay the government nearly Rs 7,500 crore to liberalise its 800 Mhz band it has in 19 circles across the country, based on industry estimates. Rest of the licences it has acquired in auction and does not need to pay the differential price.

Once it makes the radio waves licences tradable, RCom has to sell or trade it with interested parties with one per cent of the financial transaction going to the Union government. Also, any possible financial deal would mean higher annual payments for spectrum usge charges, the rules say.

"Initially, I believe Reliance Jio would go for the circles where it does not have 800 Mhz. But it will make a hard bargain since the licenses are for limited period and are costly," said Vivekanand Subbaram, telecom analyst with HDFC Securities.

Reliance Jio currently posses licenses of 2,300 Mhz in all 22 circles, 800 MHz in 10 circles and 1,800 MHz in 14 circles. It needs support of lower frequency bands such as 800 Mhz or 1800 Mhz to roll out pan India 4G services as higher frequency radio waves do not penetrate in walls and could disrupt calls, though data transfers are faster in higher frequencies.

Jio has a spectrum sharing pact with RCom for 800 mhz bands in 10 circles and according to reports, is in the process of signing a pact to use its spectrum in other circles as it has plans to launch 4G by December this year.

The government's decision to allow trading of radio frequency licenses was greeted with cheers by the telecom industry as it means they do not have to wait for another auction, where prices usually jump much higher. However, any interested party willing the buy spectrum from RCom could use it for just six years instead of 20 years period they get in an auction as its 19 licences are expiring in 2021.

"Spectrum trading will not alter the validity of the traded block of spectrum. We emphasise on this aspect primarily to caution investors on being careful about 'value upside from spectrum trading' computations for RCom," Kotak Institutional Equities said in a note to investors.

Also, after liberalising the spectrum, RCom would have to deploy new technology to operate in GSM band, as it currently operates these frequencies for CDMA mobile technology, which means additional fincial burden for potential buyers.

"Spectrum are limited assets, it will not come cheaper for anyone," said Rishi Tejpal, analyst with technology advisor firm Gartner.

Both Reliance Jio and RCom declined to comment for the report saying they do not respond to market speculations.