Brothers in Arms: Why Mukesh and Anil Ambani signed their Rs 12,000-cr tower deal

Gurdeep Singh, CEO of Reliance Communications (RCom) wireless business, has had a busy day.

The Anil Ambani-owned RCom signed a Rs 12,000-crore deal, the biggest in recent times, with Reliance Jio Infocomm, Reliance Industries' telecom venture, owned by elder brother, Mukesh Ambani. Reliance Jio's services are not yet launched, and many details are still a puzzle. But this deal is one of the most important parts of the big game.
 
Both companies have a lot to gain from the deal. "It will give RCom assured annuity income and enhance cash flow," says Singh.  
 
Why is this so important?
 
RCom has for years now been trying to sell its tower business to reduce its debt of close to Rs 38,000 crore. The deal with Reliance Jio will bring in an upfront payment of an estimated Rs 1,000 crore and a yearly rental of Rs 800 to 1,000 crore for the next decade or a bit more.
 
RCom has also proposed a sale of Reliance Globalcomm, its subsidiary, to Bahrain Telecommunications for an estimated Rs 6,000 crore. Only a couple of months ago it had signed another deal with Reliance Jio, for an inter-city network for Rs 1,200 crore. A third deal is in the works between the once-estranged brothers, which will fetch Anil Rs 3,500 crore. All put together, RComm's debt is expected to come down by Rs 11,000 crore.
 
All this has happened on a day when a newpaper report claimed a buyout of RCom was in the works. MTN is rumoured to be trying to enter India by buying a stake in RComm. So is the company cleaning up its books for higher valuation? Singh declined to comment, saying merely that every six months there is some rumour, and that was all he would say.
 
What are the benefits for Reliance Jio?
 
Mukesh, the elder brother, perhaps knows RComm better than anyone else. Indeed, he was the one who started the first price war in 2003 (when the brothers were still together) with Monsoon Hungama, providing mobile handsets at subsidised rates. And it was under Mukesh that Reliance put in a huge fibre network which also connects towers, the largest any private operator has, 80,000 km long. Globally, RCom has 280,000 km of fibres.
 
Thirty-seven per cent of the towers in the network are fiberised, through which data traffic can travel at very high speeds. From the towers the last mile connectivity to users will be wireless. It also helps keep the wireless network less congested. In the areas where Jio might have most of its data traffic, Singh says that 65 per cent of the towers are fibre connected.
 
So, Jio has leased 45,000 towers, and has also stated its intention to jointly grow the network in future if it needs to increase penetration.
 
All this put together, the deal is a win-win for both the brothers. And certainly, the deals between the brothers is helping Anil clean up his books, but how much of this will help Mukesh to deliver on his vision of India shifting to "digital currency from paper money" is yet unknown.
 
Maybe we need to wait for some more time for the bigger "India Shining" dream to hatch.