Bharti Airtel on Tuesday signed a “definitive” trading deal to sell its 800 MHz spectrum to Reliance Jio Infocomm in Andhra Pradesh, Delhi and Mumbai circles for Rs 1,037.6 crore, marking the first ever such deal between the two bitter rivals.

Reliance Jio purchased 6.25MHz, 8.75MHz and 7.5MHz spectrum in the 800MHz band in Andhra Pradesh , Delhi and Mumbai respectively in the recently concluded auctions. Post this, Jio’s spectrum holdings in these circles amounted to 6.25MHz, 8.75MHz and 12.5MHz respectively.

This was purchased for a total cost of Rs135 billion, and with a validity of 20 years, which implies a cost/MHz/annum of Rs 300 million.

“Jio, through the deal with Bharti, has now topped up its holding in these circles to 10MHz, 10MHz and 15MHz respectively, for a total consideration of Rs14.97 billion. With remaining validity of 14 years, the implied cost/MHz/annum comes to Rs140mn, a c50 per cent discount to the auction price. Jio has therefore not only built up 10-15MHz blocks in these key circles, but has potentially saved US$400 million,” UBS said in a note.

Airtel had got the above spectrum in 800MHz band from the Tata Teleservice acquisition (in 2019) and these spectrum bands were largely unused as the company had an existing 900MHz network in AP, Delhi and Mumbai service areas. “Bharti is therefore able to unlock value from unutilized spectrum,” UBS said.

Credit Suisse said that by selling the spectrum to Jio, Airtel is able to monetize the unused spectrum assets.

While this deal strengthens Jio’s footprint in these circles, it is important to note that Jio had the opportunity to purchase this spectrum in the auction itself since enough 800MHz spectrum was available. “To that extent, there is no “strategic opportunity” lost for Bharti Airtel,” UBS said.

Credit Suisse said that Jio is able to get additional blocks of 800MHz spectrums at 47 per cent discount from government auction reserve price (pro-rated for remaining period of the license).

“Further, Jio now has a contiguous block of 2x10MHz of 800MHz spectrum each in AP and Delhi service areas and 2x15MHz in Mumbai service area,” it added.

Additional spectrum will help Jio add capacity in the three service areas. The three service areas of Delhi, AP and Mumbai account for 17 per cent of gross revenues for Jio as of December 2020. The Mukesh Ambani-led telco has gross revenue market share of 32 per cent / 40 per cent and 31 per cent, respectively, in these three service areas.

Jio occupies second-highest gross revenue market share in AP and Delhi service areas (behind Airtel) and ranks third in Mumbai service area behind Vodafone Idea and Airtel, as per Credit Suisse analysis.

Airtel, on the other hand, has a sub 1GHz network pan India (except JK). Post the recent spectrum auction and factoring the remaining 800MHz from Tata Tele acquisition, Airtel now has a sub 1GHz network across India with at least 2×5.0MHz of sub 1GHz spectrum in all service areas, strengthening the company’s network coverage.

“In our opinion, the agreement also highlights that Jio and Airtel can work together for a mutually beneficial cause (contrary to general perception), suggesting slight moderation of competitive dynamics. Airtel is our preferred pick in the sector as we see it as a beneficiary of either outcome—of price hike in the near term or from continued market share gains from VIL in case of delay in price hike,” Credit Suisse said in a note.

UBS said that Bharti Airtel remains well placed in the sector with a strong brand and spectrum footprint.