R-Comm-Aircel merger, a stitch in time?

Looks like Telecom sector is going to stay abuzz for the next few more days. If Reliance Jio was not enough to shake the entire market with its data deals, Reliance Communications is not far behind. It is said, that before the mighty entrance of Reliance Jio, Reliance Communications were already in exclusive talks for a potential merger of its wireless business with rival Aircel for a year now.

And, today the deal is done, the merger has now been announced officially, which means, Reliance Communications has now become fourth largest telco with a net worth of Rs 35,000 crore and asset base of Rs 65,000 crore.

Let's talk numbers ...

The merged entity will have a customer base of about 194 million, including 110 million of RComm and 84 million of Aircel ranks. According to CNBC-TV18, this will be the second largest with others being Airtel's 250 million, Vodafone's 198 million and Idea's 175 million. The deal is expected to close in 2017.

The speculated and much awaited deal will help Reliance Communication cut its debt by $3 billion, or more than 40 percent of its total debt, said a report in Reuters. Aircel's debt will fall by about Rs 4,000 crore.

As of end-March, Reliance Communications had net debt of Rs 41,362 crore. Closely-held Aircel had Rs 18,500 crore debts as of 2013; Reuters report said citing rating agency ICRA.

RCom and Aircel's majority owner, Malaysia's Maxis Communications Berhad (MCB), has signed definitive documents for the merger of their Indian wireless businesses, where RCom and Aircel will hold 50 percent each in the new company.

Brand new ...

Going with the reports, the new entity will be renamed and re-branded. It will be managed by an independent professional team under the supervision of the board, the press release said.

The board of the new company will have equal representation from the two sides. MTS (Sistema), which was acquired by Reliance for $730 million, will continue to hold 10 percent stake in RCom with no presence on the board.

The merged entity will hold 451 MHz of spectrum pan-India - Aircel's 187.6 MHz, Sistema Shyam's 39.4 MHz and Reliance Communication's 224 MHZ. This forms 19.3 per cent of total spectrum.

The combined business will trail Idea with 10 percent share compared with Idea's 20.1 percent. Airtel and Vodafone will have revenue market share of 31.6 percent and 22.6 percent. In other words, the merged business will overtake Idea Cellular Ltd in terms of subscription numbers although it will still lag in terms of revenue. An RComm press release says it will rank among the top three operators by revenues in 12 important circles.

Word has it...

RComm chairman Anil Ambani said in the press release, "We expect this combination to create substantial, long-term value for the shareholders of both Reliance Communications and Maxis (holding arm of Aircel), given the benefits of wide-ranging spectrum portfolio and significant revenue and cost synergies.”

Regarding the concerns about the financial strength of the merged entity in the face of the heightened competition, Prashant Singhal, Global Telecom Leader, EY says, “in a fragmented telecoms market, the much awaited consolidation was imminent. India is the only telecoms market in the world sustaining over six players with a market size of USD40 billion. Given the financial situation and spate of developments the sector has witnessed in past 12 months; consolidation will help telcos leverage on the synergies and drive profitability. We expect further consolidation in the market.”

Looks like, Reliance Jio and Reliance Comm have decided to stay the newsmakers for some time now. Loving the excitement and buzz in the telecom market for sure. Reliance Comm-Aircel merger might have come on the perfect time for grabbing the limelight. But for the real impact of it, let's wait and watch!