Will RCom-SSTL merger set the ball rolling for telecom consolidation in India?

By November 2nd, 2015 AT 7:19 PM

In 2014, the telecom industry in India thought that it would see its first consolidation in the sector with Bharti Airtel’s acquisition of Loop Mobile, which would have made the former a number 1 player in the Mumbai circle, where Vodafone had a dominating position.

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But, country’s top operator called off the Rs 700-crore deal after it got stuck in regulatory hurdles. Now, with RCom, SSTL merger, the question pops up that whether the consolidation story for the telecom industry has finally begun.

Analysts believe it is high-time that the government looks at the growing demand for merger and acquisition deals in recent years as such pacts were called off due to lack of clarity on such guidelines.

With RCom’s acquisition of Russia-based SSTL’s LTE-suitable spectrum in the 800MHz range, RCom has become the number one CDMA player in the country and this could set the ball rolling for telecom consolidation in the country.

Experts say that with RJio coming into the market, consolidation is something inevitable. RJio is a cash rich company and it is quite difficult to predict how it’s going to change the entire landscape of Indian telecom.

As a result, telecom companies are left with no option but to strengthen their position in order to fight the formidable player in the market.

“The much-awaited consolidation has begun with this; it’s a process rather than a transaction. It won’t stop here for the industry, we are expecting more to happen. It also indicates a kind of reorientation for the telcos,” says Faisal Kawoosa, Lead, Telecoms and SemiTronics (Semiconductor & Electronics) Practices at CMR.

Girish Trivedi, Co-Founder, Monk Consulting, adds: “Operators who have been sitting and discussing will finally start matching their skills as this merger is some starting point of some consolidation. But I really doubt about the fact that right now the telcos numbers will get reduced to 6-7 due to consolidation. Anyways, if we have limited number of players in the market government will start looking at MVNOs.”

With this deal, RCom has now got its 800MHz frequencies in eight circles – Delhi, Gujarat, Tamil Nadu, Karnataka, Kerala, Kolkata, Uttar Pradesh West and West Bengal – by twelve years, from 2021 to 2033.

KEY HIGHLIGHTS

1. Acquiring 3.75 MHz of highly valuable spectrum in 850 MHZ band in very important circles – Delhi, Gujarat, Tamilnadu, Karnataka, Kerala, UP (West), Kolkata, West Bengal and Rajasthan.
2. Spectrum valid for 18 years till 2033 (excluding Rajasthan till 2018) – extends validity of RCOM spectrum by 12 long years in the above circles (excl. Rajasthan).
3. Largest holding of 850 MHz band spectrum – most suited for 4G LTE, which is the future – aggregating 148.75 MHz.
4. Acquisition of 9 million customers.
5. Revenue of approx. Rs. 1,500 crore per annum.
6. Significant capex and opex synergies
7. SSTL operational team has demonstrated strengths in data market in India.
8. Zero cash outgo – acquisition of valuable spectrum and business funded entirely by stock, and takeover of DoT instalments of Rs. 392 crore per annum only.
9. Eliminates need of future cash outgo from RCOM for acquiring 850 MHz spectrum in 8 circles in 2021, on expiry of its own spectrum – based on auction price of 2015 and accreted interest policy of DoT for future auctions, this would have amounted to minimum outflow of Rs. 15,000 crore in 2021 which will now not be required!
10. SSTL is paying off all its existing debt on its own prior to Closing.
11. No Board seats, no veto rights to SSTL – continuity of management.
12. Spectrum continuity risk for RCOM eliminated for minimum 15 years in 18 out of 22 circles – between 850, 900, 1800 and 2100 – balance 4 circles AP MH HR and UP(E) also still have 6 years to go.

Having over six years of experience in business journalism, Krishna has a knack for writing on telecom and IT. She believes that tryst with technology is the best thing that has ever happened to the mankind. Krishna is a telecom analyst with CMR

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ShijusaketRanganathanRajagopalanS GopalKrish Recent comment authors
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Shiju
Shiju

A telecom operator should have spectrum like this
5*2 Mhz of 900 2g+3g
5*2 mhz of 1800 2g+4g
5 mhz of 2100 3g only
5 mhz of 700 4g
Then top up spectrum respective of subscriber.

saket
saket

Why complicated. New guidelines allow spectrum swap. So rcom could simply swap with mts. Also what’s point in reconfigured of existing non liberalized cdma spectrum and. Shift customer base to new 3.75Mhz to. Existing cdma and EVdO subscriber. One thing is only sure that RJIO WILL GET MORE 850 liberalized spectrum for 4G and RJIO CUT DOWN DATA COMPETITION IN 4G market by atleast 2 player(Rcom and mts). As Rcom will never launch 4G on either of band 850/1800. One more doubt. It’s worth useless to upgrade and maintain REV B network by Rcom, it will simply lead to eating… Read more »

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