RCOM and Aircel in merger talks: Why it makes sense?

MUMBAI, INDIA: Reliance Communications is into a non-binding but exclusive talks for a potential merger of its wireless business with rival Aircel, said the company.

It has entered into a 90-day exclusivity period with the shareholders of Aircel- Maxis Communications Berhad and Sindya Securities and Investments Private Limited, to consider this.

The potential combination will exclude RCOM’s towers and optical fibre infrastructure, for which RCOM is proceeding with a separate  asset sale.

Speaking on this development, Amresh Nandan - Research Director, Gartner said, “With increasing competitiveness in the market, sustainability will become challenging for bottom 4 or 5 telcos. Thus, it makes sense for them to identify long term alternatives. This kind of consolidation has been expected in Indian telecom market for quite some time now and we can anticipate few more announcements in 2016."

Regulator realized such a need of consolidation and helped the situation through policies around spectrum trading. Important factors supporting such deals are current status of voice ARPU and data ARPU besides growth in data traffic. Entry of Reliance Jio will influence competition among top five telcos and may impact tariffs further. So one can expect data ARPU stagnating, if not dropping. Voice ARPU is anyway going to fall through data and, data traffic volumes are only going to move upwards, explained he.