As we had reported earlier, Reliance Communications has confirmed it is has been involved in exclusive talks to buy MTS India in a stock swap deal. Earlier last month Vladimir Yevtushenkov, who controls MTS parent company Sistema conglomerate held talks with Reliance Communications about a possible joint venture in India.

4G service on the horizon

In last February 2015 auction, RCOM surprised everyone by bidding for additional 800MHz spectrum of  1.25 to 2.5 MHz in many circles to bring its total holding to 5MHz on pan India level for 4G deployment. But 4G deployment was not going to be easy for RCOM as major chuck of its 800MHz spectrum still lies unliberalized  and had to pay thousands of cores to get it liberalized. Another problem was its existing CDMA and EVDO subscriber base. Once RCOM go for 4G, there won’t be enough airwaves left to continue its CDMA operations.

Here comes the significant of merger with MTS India as it hold at least 3.75MHz of liberalized 800MHz spectrum in 9 circles. Combined with that the recently bought 1.25 to 2.5 MHz spectrum will make sufficient 5MHz for 4G deployment and still have enough 800Mhz unliberalized spectrum to continue CDMA operations for existing subscribers for both operators.

Win-Win for both operators

The pure-play CDMA operator MTS India strategy was to become a major data player in India. But its decision to stay away from recent auction citing high reserve price has proven lethal as it has left with scarcity of spectrum and operations in only 9 circles. 4G deployment was also impossible for MTS as it was left with only 3.75MHz spectrum in most circles. With the merger, both operator could pool its spectrum to start 4G service on liberalized spectrum while retaining its CDMA service on unliberalized spectrum.

Both companies will go for a stock swap deal which means companies don’t have to spend money on the merger. Once the merger is completed, RCOM and MTS will end up with shareholding in the combined entity. The government is excepted to announce merger and acquisition guidelines shortly. But still the transaction is not likely to go smoothly as in past government regulators had raised concerned about similar mergers of Vodafone-Hutch and Idea-Spice.