RCom-Aircel Fine-Tune Merger Terms

Anil Ambani-led Reliance Communications and Maxis-owned Aircel, which have been in talks to merge since December 2015, have decided to form a 50:50 joint venture, according to local media reports. (See India's RCom in Talks to Buy Aircel.)

The combined entity, after receiving the required regulatory approvals, will overtake Idea Cellular Ltd. to become India's third-largest telecom service provider -- behind Bharti Airtel Ltd. (Mumbai: BHARTIARTL) and Vodafone India -- with a market share of about 18.5%.

According to data from the Telecom Regulatory Authority of India (TRAI), Bharti Airtel had about 24% of the Indian mobile market in December, while Vodafone India's share was around 19% and Idea Cellular's approximately 17%. Fourth-placed Reliance Communications Ltd. served about 10% of the market at that time, while number-five player Aircel Ltd. -- which is 74% owned by Malaysia's Maxis Communications Bhd. -- had an 8.5% share.

Both RCom and Aircel have huge debts. RCom's borrowings have risen to about 404.7 billion Indian rupees ($6 billion), while Aircel's are roughly INR180 billion ($2.64 billion). The operators plan on transferring about INR140 billion ($2.05 billion) of debt to the new entity. Aircel, moreover, has decided not to sell its 2.3GHz spectrum to Bharti Airtel, as it had originally planned.

The new company might also go for a public listing, subject to market conditions.

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Following the merger, RCom intends to focus on its data center, direct-to-home TV, enterprise, fiber and sub-sea cable operations. The operator has been trying to sell its tower business to private equity firms Tillman and TPG, but the deal has been delayed because of funding and due diligence issues. It is likely to be closed by mid-March.

The combined entity would be in a strong position to challenge India's current top three telcos -- Bharti Airtel, Vodafone India and Idea Cellular -- and to put up a strong fight once new 4G entrant Reliance Jio launches commercial operations.

In the long run, however, this consolidation will help RJio. Thanks to an existing agreement RCom, RJio will get access to nearly 200 million customers of the merged entity, which could help it to fuel interest in its 4G offering. RCom will also continue to honor its infrastructure and spectrum sharing and trading agreements with RJio. (See RJio & RCom Enter Spectrum-Sharing Pact .)

RCom has also recently acquired Sistema Shyam TeleServices Ltd. , which operates under the brand name of MTS India and is the country's only pure-play CDMA operator. (See MTS India Merges With RCom.)

— Gagandeep Kaur, contributing editor, special to Light Reading