In a country like India, collaborations between bigwigs have led to profitable alliances and lower costs. However, a 1,200 crore deal between Reliance Industries Limited (RIL) and Reliance Communications for sharing the fibre optic cable network for the launch of RIL’s 4G services – Reliance JioInfocomm will be a trend-setter for India Inc.
For the country’s biggest company led by MukeshAmbani, setting up a whole fibre optic network for its high speed and voice services over fourth generation (4G) telecomm network was a task which meant delaying the launch as well as investing for an already existing fibre optic cable network across the country. It was a smart move by RIL to ink this deal with RComm for its 4G servicesthat will accelerate its launch and that too at a lower price than most telecomm market players. In comparison to the sector regulations set by Telecom Regulatory Authority of India (TRAI), the valuation of this fibre-sharing deal is priced at least 55-60% lower than the cost of building it entirely. This agreement has also thrown some light on the till-yet elusive launch plans and rollout of the fourth generation airwaves across the country by Reliance JioInfocomm.
For a deal like this, it doesn’t mean that MukeshAmbani dint have any better bargains. But as it is difficult to come up with a new infrastructure for a product in a new sector, and duplicating investments, it is wise to bring down costs by setting the sail in the direction of the wind.
According to experts, this deal will benefit Reliance Communications wholly only if the agreement sees further extension which means a wider business cooperation with RIL in the telecomm domain in the country. This deal as of now facilitates RCommwith reciprocal access to the infrastructure to be built by JioInfocomm in the future.
With this deal in place, RIL can now strike a new deal regarding securing the use of towers that can use scale and size to reduce cost of technology and infrastructure.
Another aspect which the experts look at it is as this deal will open gates to many more such collaborations between small and medium sized companies to share infrastructure, assets, resources and research data and avoid mindless competition. For India Inc., there is a lot of scope for such productive alliances because there are a lot of fragmented and highly competitive sectors. Here it is feasible for even small companies to collaborate or combine through a merger that will economies of scale.