Reliance’s decision to separate the digital business from the telco may have helped Jio dodge the adjusted gross revenue bullet.
First, the impact
SC had upheld the definition of adjusted gross revenue for telcos to include their non-core income streams. This increases the amount payable as licence fees and spectrum usage charges, which are calculated as a percentage of adjusted gross revenue. The ruling means telcos have to shell out close to Rs 1.3 lakh crore in dues.
What did Ambani do differently?
Moving Jio’s noncore digital businesses to a new unit would contain the telco’s AGR-linked licence fee/SUC payouts in future and in turn insulate the company from potential financial shocks, ahead of a potential listing in about a year.
An Alibaba-like plan
RIL plans to invest Rs 1.08 lakh crore through a rights issue in a newly formed wholly owned arm. This, in turn, would use the cash to invest in Jio, which is the licenced entity that houses the connectivity business, to make it almost net debtfree by March 2020, with the exception of spectrum-related liabilities.
Brokerage JP Morgan said the new Jio digital entity “is debtlight, making it more attractive to induct strategic partners, and also establishes a valuation for a future strategic sale as EV (enterprise value) for the new wholly owned subsidiary is in $60-65 billion range, $15 billion higher than our current EV of Jio.”