Reliance-Aircel-MTS — Big boost for Reliance Communications and Aircel

Reliance Communications (previously known as Reliance Infocomm) launched in 2002 by the undivided Reliance Industries Limited went on to reduce the cost of a call to the price of a postcard (Re.1 per min) from a dollar per minute (close to Rs.35 per min). But with times GSM became the standard in Indian Telecom Industry, the company found it very costly to move from CDMA to GSM thereby increasing the debt for the company. 2016 proved to be a good year for Reliance Communications giving it the necessary boost to survive and compete in the market. This post discusses about the acquisitions, mergers and partnerships helping Reliance Communications to fight in-order to sustain and remain profitable (Reliance Communications Q1 net profit rose by 5.8% at Rs.54 crore as reported by moneycontrol.com)

 

Reliance Communications

Here comes the fourth largest operator in India to fight the fiercest battle in the Indian telecom industry.

 

Brief about how Reliance Communications fared till 2016

 

It was launched by the undivided Reliance Industries Limited on December 27, 2002 on the 70th birth anniversary of the legendary founder Late Dhirubhai Ambani {it was his dream for every Indian to own a phone and make a call for a price lesser than a postcard} died on July 6, 2002 just months before Reliance Infocomm was launched.

 

The network had laid optic fibre cables to top broadband using cities in India for high speed internet and mobile phones at Rs.501 embedded with internet, free incoming calls and other Value Added Services.

 

Reliance Empire split in 2006 and Reliance Infocomm went to Anil Ambani, which, he branded to Reliance Communications.

 

With incumbent operators (Airtel, Vodafone [previously Hutch] and Idea) using GSM, Reliance Communications found it difficult to compete only with CDMA; making it to invest in GSM telephony in India increasing the debts of the company.

 

The brothers had signed a non-compete agreement such that they won’t enter each other’s business was cancelled in 2010 making Mukesh Ambani enter the telecom industry with Reliance Jio.

 

Come January 2016

 

Reliance Communications secured two deals: – Acquisition of MTS (Sistema Shyam TeleServices Limited) and signing a spectrum sharing pact with Reliance Jio (promoted by Mukesh Ambani).

 

On 14th January 2016, Reliance Communications went on to acquire debt free MTS (the parent would clear the debts (Around Rs.3200) before the transfer of the company to RComm) in an all-stock deal and MTS would have a 10% stake in the company.

 

The benefit for Reliance Communications of the deal:

  • 9 million customers of MTS increasing the count to 118 million as of January 2016.
  • Increase in revenue for Reliance by Rs.150 crore.
  • It got access to spectrum valid from 2033 in 8 revenue generating circles namely Delhi NCR, Kolkata, Gujarat, Karnataka, Tamil Nadu, Kerala, UP West and West Bengal. The licenses in West Bengal for Reliance are expiring in 2017 and other circles in 2022 thereby reducing the cost of acquiring new spectrum in the upcoming auctions, helping the network attain sustainability in the fierce battle between the incumbent operators and Reliance Jio.
  • It gets access to 800-850 MHz band spectrum, which can be used to roll out 4G services in India.

 

Anil Ambani controlled Reliance Communications enters into a pact with his elder brother Mukesh Ambani Reliance Jio such that Reliance Communications get access to world-class high-speed 4G network of Jio. In-return Jio would get 800 MHz spectrum in 9 highest revenue generating circles from Reliance Communications for its VoLTE (Voice over 4G) services launched by Jio on September 5, 2016. A win-win situation for both the operators

Media release from Reliance Comm for 4G services in India

 

The biggest consolidation in Indian Telecom Industry: Reliance Communication-Aircel-MTS combo

 

In the month of September 2016, Reliance Communications announced the merger of Reliance and Aircel in a 50:50 equal entity such that the new entity has assets worth Rs.65000 crore, debt of Rs.28000 crore with a net worth of Rs.35000 crore. The company would generate revenue of Rs.27000 crore with an EBITDA of Rs.6800 crore [EBITDA: Earnings Before Interest, Taxes Depreciation and Amortization] reported Business Line

 

Aircel was started as a regional telecom operator in Tamil Nadu in 1999 later went on to become Tamil Nadu’s largest network operator due to superior network quality. Later it expanded its footprint in different states in India, won spectrum for providing 3G and 4G services to its customers at low prices (Aircel’s Unique Selling Point). In 2006, Malaysian telecom company Maxis Communications Berhad bought 74% stake in the company investing around Rs.35000 crore in the company making it the largest Foreign Direct Investment in any company in the industry.

 

Reliance Communications shifted most of its CDMA customers across to the 4G network except for four circles, namely, Rajasthan, Karnataka, Kerala and Tamil Nadu. Aircel has spectrum bands for 4G network for only eight circles in India.

 

This deal brought in various benefits for the new entity.

First one: It has the second highest spectrum (leading the pack: Airtel) with 448 MHZ units.

Secondly: The new entity got the company spectrum in all bands available in India, namely 850, 900, 1800 and 2100 MHz with validity till 2035 in many circles. In India the cost of voice calling and data is plummeting due to fierce competition, this reduces escalated expenses of acquiring/securing spectrum from the auctions.

Thirdly: The new entity need not spend on investing in developing 4G services due to the existing deal between RComm and RJio for 4G network sharing across all circles in India.

Lastly: The new entity would have a subscriber base of 190+ million, making it the third largest operator by market share and fourth largest by revenue share in the telecom industry.

 

Reliance Communications and Aircel would divest their own tower business by reducing their debts before the merger. The combined entity is expecting 1 Billion USD investment from foreign investors in a few months in the merged entity.

 

MTS acquisition is expected to close by 2016 end and the new merged entity would come to existence by 2017 as a rebranded telecom operator.

 

Consolidation is the new trend not only in the telecom sector, but in all sectors in India. With Flipkart-Myntra-Jabong coming together to make an undisputed leader in the fashion e-tail in India; State Bank of India absorbed all its associate banks, namely Mysore, Hyderabad, Bikaner & Jaipur and Travancore into State Bank of India making it into the list of top 50 banks of the world headed by Arundhati Bhattacharya. Sony acquired Ten Sports from ZEEL group making a two-sided contest between Star India and Sony Pictures Network for sports broadcasting in India. Now Reliance-Aircel-MTS have merged into one entity to fight the incumbent operators and Reliance Jio, making the telecom industry more consolidated. All the above entities are coming together to serve their customers better and to sustain in the market with profitability.

We would be seeing some more consolidation in different sectors in India Inc. Let’s see how the industry will shape in the future. Hope for the best, fingers crossed.

 

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