Logical for Reliance Jio, RCom to share towers: ICICI Sec

Vikash Mantri of ICICI Securities says that while the Rs 1200 crore fibre optic network sharing deal with Reliance Jio Infocomm, is not very large for Reliance Communication (RCom), it does pave the way for further asset monetisation by the Anil Ambani-controlled firm. Mantri expects RCom to enter into a deal with Reliance Jio for sharing towers.

 "It is very clear that Reliance Jio needs to lease out towers. It would be difficult to build its own towers in a short span of time. Whether it happens with RCom or with any other tower company - that is yet to be seen," he said in an interview with CNBC-TV18. Below is the verbatim transcript of Vikash Mantri’s interview on CNBC-TV18 Q: What did you takeaway in terms of the material ramifications from this deal?
A: The deal does not change much for RCom other than the Rs 1,200 crore coming into the company which is a miniscule amount, given its debt, which is close to Rs 37,000 crore now. It indicates the possibilities of further asset monetisation. While this deal per se in terms of financial impact wouldn’t mean much for the company on an overall basis, everyone is excited about the asset monetisation. We have seen that happening and things should follow on to this news further. Q: Do you mean they could possibly get a Reliance Infratel’s stake sold now with greater ease because of the participation from Reliance?
A: It would be too early to say that. The first thing that we would want is the optic fibre deal is through, asset monetisation is through. Now, there is a need to get external tenancies on Reliance Infratel. If we have Reliance Jio as a willing partner - that could help RCom to go out and monetise their tower assets. Now, it is clear that Reliance Jio needs to lease out towers. It would be difficult for the company to build its own towers in such a short span of time. Whether it happens with RCom or any other tower company, is yet to be seen. Q: Some analysts are pointing out that it does not follow that Reliance Jio, given its focus on data, would need to do a major tower sharing deal with RCom that results in significant annual cash flows. Would you agree with that?
A: You may not lease out all the towers of RCom. But over a period of four-five years, it would be necessary for you to roll out at least 12,000-15,000 towers if not more. If we were to look at the 3G towers of Bharti or the self sites of Bharti, they are close to 22,000. On 4G you might have to do lesser, but will have to build it over. So we are not talking about the entire leasing out of towers, but yes, there is an opportunity set of at least 12,000-15,000 tenancies. Q: What does the deal mean for other listed telecom players because Bharti is down two percent today? There is some apprehension that Reliance’s aggressive entry could have some implications for the listed players, is that fear overstated?
A: It is completely overstated. Once Reliance won the auction for 4G, it was clear that they would be in the market. Now, it is good that they have taken 2.5-3 years to be there in terms of network rollout. Since it was there, there is going to be limited play in data, their voice strategy is still not very clear. Even if they try to make an attempt in voice, it will be very difficult, so it was known. The telecom sector has bigger worries in terms of competition between the incumbents and the regulatory issues then any other new player coming in such as Reliance Jio, it is targeting only a small set of 4G subscribers. Opportunities right now; may be limited.