The entry of Mukesh Ambani led Jio was like an earthquake; and when earthquakes happen, then lots of interesting developments follow suit, which includes several equal magnitude earthquakes as well.
Anil Ambani led Reliance Communication has merged with Aircel, which is being described as Indian telecom’s largest ever consolidation ever, creating a Rs 65,000 crore telecom behemoth. No doubt Jio was a pressing factor in uniting these two companies, but talks were on since last year.
We had reported in December, 2015 about a possible acquisition of Aircel by Reliance Communication, which has turned out into a merger now.
Both Reliance Communication and Maxis Communications Berhad, the parent company of Aircel, will hold 50% stake in the new entity, with equal representation from both the sides in the board.
We analyse 4 reasons, why RCom and Aircel decided to shed their egos and merge with one another to create 3rd largest Indian telecom firm. And we will understand the role of Jio in this whole deal.
Contents
Reduced Debt
Both RCom and Aircel are reeling under heavy debt, and this merger will give them some room to breathe. As a result of the merger, a new entity would be created, along with a new brand name to sell telecom services.
And the best part is that, this new entity will absorb most of the ongoing debt of RCom as well as Aircel. A smart business move, none the less.
On one hand RCom will transfer Rs 20,000 crore debt into this new entity, which includes Rs 14,000 crore of long term debt and Rs 6000 crore of installments, which is payable to TRAI for buying spectrum.
On the other hand, Aircel will transfer a debt of Rs 14,000 crore to this new entity.
Besides, both of these companies will invest $570 million each to create a pool of Rs 7600 crore, which would be used to expand their business and buyout more spectrum.
This merger only concerns wireless business of RCom, and as per reports, RCom’s tower business is also for sale at a valuation of $2.5-3 billion.
Larger user-base:
Telecom is a capital-centric business, and disruptions such as Jio’s entry with free voice shakes up the industry, leading to consolidations and mergers. Aircel-RCom merger is a perfect example of this theory.
In order to fight the might of Jio, smaller telcos need to join their forces and create a power of equal magnitude, something which Aircel and RCom understood well in advance.
After this merger, the combined user-base of the new entity would be around 180 million, with a revenue market share of 6%. It will push Idea Cellular (175 million) to #4 and would be ranked #3 after Airtel (251 million users) and Vodafone (198 million users)
More spectrum
In terms of spectrum control, the new entity of RCom-Aircel will be the second biggest entity in India. Total spectrum of 448 MHz would be now controlled by this new entity, across 850, 900, 1800, and 2100MHz bands; the validity of which is till 2033-35.
Considering that the controlled spectrum by RCom-Aircel spans across 2G, 3G and 4G services pan-India, the behemoth can now introduce competitive pricing, and more value-additions, compared to their stand-alone existence.
More firepower to fight Jio
Traditionally, both RCom and Aircel were voice-centric telecom firms, having just a presence in data services. However, the entry of Jio has changed the equations by 180 degree. By providing free voice and dirt cheap data, that too 4G, a new standard has been introduced by Jio, which RCom and Aircel clearly understood and comprehended.
By combining forces, they have not only climbed the ranking but also pushed Idea down one slot, and created a barrier for Jio which is swiftly moving towards 100 million customer mark.
With reduced debt, 3rd largest userbase and 2nd largest spectrum holding, RCom-Aircel merger has now formed a third front after Airtel and Vodafone to take on the might of Jio.
Idea and Tata are now the players to watch for, along with BSNL to observe how they respond to the challenge of Jio in coming days. Probably, we may witness some more consolidation!
One more company to face loss