Anil Ambani-led Reliance Communications may soon acquire Aircel, which is controlled by Malaysia-based Maxis Communications. This move comes on close heels of RCom’s acquisition of the country’s only pure-play CDMA operator, Sistema Shyam.
A few days back, Aircel was believed to be in talks with Bharti Airtel for a possible acquisition.
This three-way merger between Reliance Communications, Sistema Shyam and Aircel will propel the merged entity to the second largest telecom operator and thus replacing Vodafone India from that slot. The merged entity will have over 200 million subscribers besides improving the revenue market share for Reliance from 6-7 per cent to 14-15 per cent.
Though the merged entity is likely to emerge as a formidable entity in competition to the Airtel’s dominance in the industry, debt can its Achilles heel. Both RCom and Aircel are heavily in debt. While RCom has a total debt of Rs 40,000 crore Aircel has a debt of Rs 26,000 crore. RCom has been trying to reduce its debt with the sale of its tower unit.
“It is definitely a step in the right direction as the industry has to move towards consolidation. It is difficult for so many telcos to survive in a extremely cut-throat environment with low ARPUs,” says Deepak Kumar, Founder Analyst, BusinessandMarkets.
Consolidation has been expected for a long time and the entry of Mukesh Ambani’s Reliance Jio is acting as a catalyst for the industry.
Possibly Mukesh Ambani will reap the benefits of this merged entity. Being a Greenfield telco, it would have been extremely difficult for the company to attract customers from the other telcos, especially so for a new technology. However, the company’s affinity with Reliance Communication is well known. Reliance Jio already has an infrastructure sharing agreement with RCom. The two brothers were also planning to sign spectrum sharing and trading agreements. The merged entity will provide a ready subscriber base to RJio. Anil Ambani had also mentioned that RCom’s subscriber base would be offered RJio’s 4G services at compelling tariffs and a small initial investment.
“It is definitely positive for Reliance Jio as it will get access to a huge subscriber base. However at the same time it is not going to be too easy since they are marketing Voice Over LTE (VoLTE) as their differentiation factor,” says Kumar.
While RJio would be primarily offering VoLTE services, other telcos like Bharti Airtel, Vodafone and Idea are banking on 4G services.
RJio believes that VoLTE offers `true 4G’ experience, which is superior than normal 4G. While the three-way merger between RCom, Aircel and MTS would provide it with readymade subscriber base of 200 Million subscribers, VoLTE might still make it tough. VoLTE requires a VoLTE device, which is still expensive for mass adoption. RJio would still need to make VoLTE devices available at compelling prices to increase the uptake of its services.
The merged entity can be a big arsenal in Reliance Jio’s gameplan to dominate the country’s data ecosystem.
