Tata Teleservices has initiated talks with fellow Indian operator Reliance Communications (RCom) to join the merged entity of RCom-Aircel and MTS.
Reliance Communications Ltd. , India's fourth-biggest operator, acquired India’s only pure-play CDMA operator, MTS India, last year and has also announced plans to merge with Aircel Ltd. However, the deal with Aircel is in trouble: India's Apex Court has threatened to cancel Aircel's spectrum license if T. Ananda Krishnan, the owner of Malaysian telco Maxis Communications Bhd. , does not appear in court to answer questions about his organization's takeover of Aircel in 2006, which is being investigated for irregularities.
Since the market entry of Reliance Jio in September last year, the Indian market has been in the throes of consolidation. The country’s second largest service provider, Vodafone India , recently announced that it was in talks with Idea Cellular Ltd. , the number-three player, about a possible merger. A tie-up between those companies would create a new market leader.
However, if the RCom-Tata Teleservices merger were to go through, it would further shake up the market, becoming a new number-three player (Bharti Airtel Ltd. (Mumbai: BHARTIARTL), the current market leader, would become the second-biggest operator following the deal between Vodafone and Idea). RCom-Tata Teleservices would as a combined entity have a total of 260 million subscribers and a revenue market share of about 18%.
Besides its 53 million customers, Tata Teleservices Ltd. also holds 800MHz spectrum in 19 circles (service areas). However, while this spectrum could in theory be used for 4G services, RCom might decide to return the excess licenses to the government, since it already owns substantial amounts of 4G spectrum. Indeed, because Tata's spectrum is not "liberalized" for use with any network technology, there is a possibility that RCom would have to make a payment to the government if it decided to use the spectrum for 4G.
There will be a number of regulatory challenges for the merged entity. RCom has to resolve its problems with Aircel before it can proceed with a Tata merger. It will also need clearance from the Competition Commission of India.
The other issues are Tata's debt of about 300 billion Indian rupees ($4.48 billion) and its ongoing legal problems with NTT DoCoMo Inc. (NYSE: DCM), a former joint venture partner. RCom itself has substantial debts and will not want to see its balance sheet position deteriorate as the result of the merger. Encouragingly, Tata Group is considering an infusion of INR100bn ($1.49 billion) in Tata Teleservices in order to improve the telco's financial standing.
— Gagandeep Kaur, contributing editor, special to Light Reading