Reliance Communications, the telecom arm of the Anil Ambani Group, has got moving on its announced strategy of becoming a 4G-only operator by shedding its GSM and 3G operations.
According to industry sources, the company has been re-allocating its staff to the 4G division and gradually switching off GSM cell sites. The GSM network could disappear in a matter of days, according to sources.
However, given that the company’s towers also have third party tenants, including Reliance Jio, the company cannot shut down entire towers. Instead, maintenance activities continue to take place at these cell sites.
With its merger with Aircel falling through, the company is facing a dire financial situation and many of its temporary staff — especially on the network side — are already looking for alternative employment. Permanent staff are hopeful of being retained even after the 4G switch over.
As it did in Gujarat recently, the company would issue official notice to its customers to either switch to its 4G network, or port out to another GSM operator, before shutting down the operations.
This follows a statement by the company at the beginning of October that it will now focus on a “4G focused mobile strategy” to pull itself out of its mounting losses. This was, at the time, taken to mean that the GSM and 3G operations would be shut down.
However, the company did not give a specific timeline at the time.
RCom is in the process of shutting down its DTH operations.
RCom has, under its agreement with Reliance Jio, the option of using Jio’s 4G network across the country to serve its customers.
The operator has inked both spectrum sharing and intra-circle roaming agreements with the Mukesh Ambani-led company.
Under the spectrum sharing agreement, RCom gets access to the 850 MHz network of Jio, while under the ICR agreement, the company gets access to the 1800 and 2300 MHz networks of Jio.
In both cases, the Anil Ambani firm does not need to have its own cell towers, and can rely 100% on Jio towers.
Soon after inking the deal, Anil Ambani had said that his company had effected a ‘virtual merger’ with Jio.
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The shut down of the GSM and 4G service is unlikely to be aimed purely at saving costs.
Instead, once these are shut down, the company can divert the 2G and 3G spectrum for delivering 4G services.
However, to do so with Jio’s help, it would need to sign a network sharing agreement with the Mukesh Ambani company for its 3G and 2G spectrum.
For the 2G band, it will also have to pay a few thousands crores to the government as ‘liberalization charge’.
As such, the company could simply choose to return the 2G spectrum, while diverting only its 3G airwaves for providing 4G services. The 3G spectrum that RCom has in 13 circles including Delhi and Mumbai can be used for 4G without paying any additional charges to the government.
To add the spectrum to Jio’s 4G network, it will need to sign a spectrum sharing agreement with Jio. However, a spectrum sharing agreement can be signed only with another operator holding spectrum in the same band, and this would require it to sell part of its 3G spectrum to the Mukesh Ambani firm before signing the agreement.
The same strategy was seen when it inked a sharing deal for its CDMA spectrum, which was preceded by it selling part of the spectrum to the Mukesh Ambani company.
The proceeds of the sale of the 3G spectrum — likely to be a few hundred, or even a few thousand crores — could help RCom reduce its debt. Alternatively, RCom can use the proceeds of the 3G sale to pay the DoT to liberalize its 2G spectrum.
This will be more beneficial to Jio as it will increase the capacity of the combined network by around 20-30% in cities like Delhi and Mumbai.
Meanwhile, with its GSM network also shut down, RCom will stop bleeding cash and be able to effect a turnaround in its finances.
However, despite such possibilities, RCom continues to face some uncertainties with regard to its future as a 4G operator.
The primary uncertainty is with regard to pricing.
Despite using the same network as Jio, the company has not been able to come anywhere near the Mukesh Ambani-led company as far as pricing is concerned.
The price charged by RCom for its 4G data is significantly higher than that charged by its partner.
It is not clear whether this is because of the way the intra-circle roaming and sharing agreement between the parties have been structured, or whether it was a conscious decision by the Anil Ambani company to not compete head on with Jio in the early stages of the latter’s operations.
Intra-circle roaming pacts tend to impose practical restrictions on how low the capacity-leasing operator can price its products, as it has to pay the network provider at a fixed rate for all the voice and data it sells to its customers.
If RCom’s 4G pricing so far flows from its agreement with Jio, the company could face some difficulty in getting consumers to take up its offers and plans.
On the other hand, the freeing up of the 2G and 3G spectrum for 4G gives the company more bargaining power, and another chance to renegotiate a deal with Jio that gives it more pricing freedom.
NOTE: We have sought RCom’s inputs for this article, which will be updated when the same are received.