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With RCom, Aircel merger; Ambani brothers all set to rule telecom market

The entity will have an asset base of Rs 65,000 crore and net worth of Rs 35,000 crore; a pact with it will give Reliance Jio a voice platform

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The Ambani brothers are all set to rule the telecom market.

Less than a fortnight after elder brother Mukesh Ambani's Reliance Jio Infocomm Ltd (RJIL) sent the older players reeling from the impact of aggressive pricing for his fourth generation (4G) long term evolution (LTE) data and voice services, younger brother Anil Ambani on Wednesday created a formidable entity by merging his Reliance Communications (Rcom) with Malaysia-based Maxis Communications Berhad's (MCB) Aircel Ltd.

The merged entity will have a subscriber base of 186.7 million (9.87 million of RCom and 8.80 million of Aircel), catapulting it to the third position after Bharti Airtel (251 million) and Vodafone (198 million) and before Idea Cellular (175 million).

The two companies will hold 50% share each with equal representation on board and committees. The merger transaction, which will be completed in 2017, will prune RCom's debt by Rs 20,000 crore or 40% of the total debt while Aircel will cut its debt by Rs 4,000 crore.

The wireless businesses of both the telecom service provider will be combined through a process of demerger approved by the court.

Sources in RCom, who did not want to be named, said RCom's wireless business will be demerged for a merger with Aircel and the new entity will be renamed and rebranded. He said the actual formal merger would take around six months and approvals from Securities and Exchange Board of India (Sebi), stock exchanges, Competition Commission of India (CCI), Department of Telecom (DoT), and courts would be sought during that period.

A statement issued by two operators claimed the merger deal made the new entity the second-largest spectrum holder in the country at 451 mega Hertz (MHz) across 850 MHz, 900 MHz, 1800 MHz and 2100 MHz frequency bands and would be among the top four players in terms of customer base and revenues.

"We expect with this combination to create substantial long-term value for shareholders of both RCom and MCB, given the benefits of the wide-ranging spectrum portfolio and significant revenue and cost synergies," said Ambani, chairman of Reliance Group in a statement issued by the company.

RCom had earlier bought out the wireless business of Sistema Shyam Telecom Ltd (SSTL).

MCB, which has invested over Rs 35,000 crore since it acquired Aircel in 2006, said the deal and further equity commitment "underpinned" its belief in the long-term growth potential of "India and India's telecom sector".

A statement issued by both the companies said; "On consummation of the merger, RCom and MCB are committed to additional equity infusion into the MergerCo (merged entity) to further strengthen the balance sheet, fund future growth plans and enhance financial flexibility. Both parties are already in talks with leading international investors in this regard".

Post-merger, the entity will have an asset base of Rs 65,000 crore and net worth of Rs 35,000 crore.

A telecom analyst with a leading financial consultancy firm, who did not want to be named as his company policy does not permit him to speak on any specific company, said if the Ambani brothers have access to each other's network then the merger is likely to give Reliance Jio further advantage in terms of a voice platform.

"RCom has pooled spectrum with Reliance Jio. I don't know what the condition for the access to that will be for the new (merged) company but if that is the case then theoretically the two companies have a lot of advantages because they will have their 2G and 3G networks and we know that Jio is suffering on account of having no voice platform. If it has access RCom's network then theoretically they (Reliance Jio, RCom and Aircel) will be the only player with 2G, 3G and a nationwide 4G LTE network. Plus, it has a good market share (10%), so it should be able to do a very good market play," he said.

G Krishna Kumar, Bangalore-based telecom executives, expects only 4-5 operators to survive in the Indian market while the rest would either merge with larger players or sell out.

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