Indian number four Reliance Communications (RCom) is taking control of Sistema Shyam Teleservices (SSTL) via a stock swap, in what has been deemed “a milestone event” for Indian consolidation.
The acquisition will provide RCom with 9 million new customers, bringing in INR15 billion ($229 million) in revenue annually. For its part, SSTL is taking a 10% equity stake in RCom, worth around $290 million. The agreement, thought to be worth as much as $690 million overall, will give RCom the country’s largest holding of 800/850MHz spectrum for 4G.
RCom stated that it has acquired “SSTL’s most valuable and superior 800/850MHz band spectrum, ideally suited for 4G LTE services, to complement its own nationwide footprint of minimum 5MHz contiguous 800/850MHz spectrum aggregating 148.75MHz. This will extend the validity of [its] spectrum in 800/850MHz band in 8 regions (Delhi, Gujarat, Tamil Nadu, Karnataka, Kerala, Kolkata, UP [west] and West Bengal) by a period of twelve years from 2021 till 2033.”
For the next 10 years, RCom will be required to pay annual licence fees of INR3.92 billion to the Department of Telecommunications for SSTL’s broadband spectrum. There has been much speculation that the merger could mark the start of a far-reaching plan that would result in the creation of India’s third largest operator.
Consumer president & CEO at RCom Gurdeep Singh said: “the combination of our wireless businesses, through the demerger of SSTL wireless business into RCom for stock consideration, will generate significant capex and opex synergies for mutual benefit.”
Mikhail Shamolin, president and CEO of Sistema, added: “The merger of SSTL and RCom’s telecom businesses is a milestone event. Despite the numerous challenges the sector faced in recent years, the combination of two leading data service providers is a clear sign of progress for the Indian telecom industry. The growth of LTE technology in India will be fast tracked thanks to the deal.”
SSTL intends to clear its debt before the deal closes, which is likely to be in Q2 2016 and is subject to “customary conditions precedent, including inter alia applicable corporate, regulatory and other approvals.”
This announcement follows reports that RCom was in talks not just with SSTL but also Aircel over a potential three-way merger. This would be a significant upheaval of the Indian telecoms landscape, creating the market’s third-biggest player. A deal with Aircel could constitute the second stage of this plan, following the SSTL merger.
RCom currently has 110.6 million connections, compared to current number 3 Idea Cellular’s 166 million.