India's RCom in Talks to Buy AircelIndia's RCom in Talks to Buy Aircel

India's Reliance Communications has confirmed it is in talks about a possible takeover of smaller rival Aircel.

The move by India's fourth-biggest mobile operator would create a company serving about a fifth of Indian customers and give Reliance Communications Ltd. access to valuable spectrum resources for the rollout of mobile broadband services.

According to the latest figures published by the Telecom Regulatory Authority of India (TRAI) , at the end of September, India had a total of 996.7 million mobile connections, of which RCom had 110.4 million (11.08% market share) and Aircel had 84 million (8.43% market share). Combined they would have had 194.4 million mobile connections, or 19.51% market share, ahead of Vodafone India with 188.2 million connections (18.88% share) but still some way behind the market leader Bharti Airtel Ltd. (Mumbai: BHARTIARTL), which had 235.2 million connections for a 23.6% market share.

News of the talks comes shortly after RCom announced a takeover of Sistema Shyam TeleServices Ltd. , the Indian arm of Russia's Sistema, and may be welcomed by other players for helping to relieve some of the pricing pressure evident in India's mobile services market.

India may be set for more consolidation in the months ahead, with some experts doubtful the market will be able to support more than four or five players in the long run.

In a statement, RCom said it had entered into a 90-day exclusivity period with Aircel Ltd. shareholders and that a combination of the two mobile-phone players could lead to "substantial benefits of in-country consolidation, including opex and capex synergies and revenue enhancement."

The takeover of Sistema brought RCom some 850MHz licenses covering a number of important service areas (known as circles), and an acquisition of Aircel would hold similar attractions.

But it could also lead to a sharp increase in RCom's net debt: Both companies have borrowed heavily and Aircel remains unprofitable.

RCom has not given any indication about the potential terms of any deal.

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