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Challenges ahead for Anil Ambani as Reliance, Aircel merger talks go on

Amid profit concerns after the launch of Mukesh Ambani-led Reliance Jio, his younger brother Anil Ambani has now agreed to merge wireless telecom business of Reliance Communications with smaller rival Aircel.

BT Online   New Delhi     Last Updated: June 2, 2017  | 17:11 IST
Challenges ahead for Anil Ambani as Reliance, Aircel merger talks go on
Photo: Reuters

Amid profit concerns after the launch of Mukesh Ambani-led Reliance Jio, his younger brother Anil Ambani has now agreed to merge wireless telecom business of Reliance Communications with smaller rival Aircel, which will be the largest consolidation in the country's telecom sector.

RCom and Aircel's majority owner, Malaysia's Maxis Communications Berhad (MCB), on Wednesday announced signing of definitive documents for the merger of their Indian wireless businesses.

Currently Reliance Communications is the fourth-largest mobile carrier by subscribers, while Aircel ranks sixth in the market of 10 players led by Bharti Airtel Ltd and Vodafone Group Plc's Indian unit.

What is the deal all about:

The merger will create the country's 4th-biggest mobile phone operator with asset base of more than Rs 65,000 crore, and a net worth of Rs 35,000 crore.

RCom and Aircel will hold 50 per cent each in the new company. The board of the new company will have equal representation from the two sides.

"The RCom-Aircel combination will create a strong operator clearly ranked amongst India's top 4 telcos by customer base and revenues, also ranking amongst the top three operators by revenues in 12 important circles," both the firms said in a joint statement.

Challenges ahead:

Debt burden

Both the companies will transfer Rs 14,000 crore of debt each to the joint venture, taking the total debt of the new company to Rs 28,000 crore, excluding Rs 6,000 crore of spectrum payment liability.

The deal will help cut Reliance Communication's debt by Rs 20,000 crore ($3 billion), or more than 40 per cent of its total debt, while Aircel's debt will fall by about Rs 4,000 crore, the companies said, without disclosing their latest debt levels.

As of end-March, Reliance Communications had net debt of 413.62 billion rupees. Closely-held Aircel had 185 billion rupees of debt as of 2013, said Reuters quoting rating agency ICRA.

Upcoming spectrum auction

Both the companies though claimed that the combined entity will have the second largest spectrum portfolio, one doesn't know whether they will have enough financial might to buy adequate spectrum for better network.

A Mint report said while RCom's arrangement with Reliance Jio to use its 4G-LTE network, may allow the merged entity to do without major investment in this area, the details of the same are still in dark.

"The release does mention that the combined entity's subscribers will have access to Reliance Jio's 4G network, thanks to spectrum sharing and ICR (intra-circle roaming) arrangements. But the terms of these arrangements are not known, and it isn't clear how profitable operations will be under them," said the report.

Reliance Jio entry

The entry of Reliance Jio has sparked the fierce tariff war in the telecom space. With RJio's attractive voice and data tariff plans, the other telcos will definitely face stiff competition to secure their user base. While large operators like Bharti Airtel and Idea have an advantage of economies of scale, smaller operators like Reliance Communications and Aircel will suffer more.

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