Telenor hedges Indian options with Aircel-RCom merger proposal

Telenor’s Indian unit has floated the possibility of merging with Aircel & RCom once their proposed merger is complete.

If the Aircel-RCom merger goes through, the companies would combine to create India’s third largest operator. Telenor has proposed merging with this entity via a share swap, combining their units, subscribers and spectrum. Telenor would hold a 10% stake in this final entity, with RCom and Aircel’s owner Maxis Communications splitting the remaining 90%.

However, this potential deal is not Telenor’s only option for leaving the Indian market – it is holding ongoing talks with market leader Bharti Airtel that would see the latter acquire Telenor’s Indian unit. The deal could close as soon as the end of February. Telenor will reportedly “take the deal that will close faster” as it “wants to leave [the Indian market] as soon as it can.”

The entry of Reliance Jio Infocomm to the Indian market has rustled the feathers of India’s Big Three (Bharti Airtel, Idea and Vodafone India), with the newcomer offering free voice and low-cost data as a welcome package for new subscribers. Telenor has a market share of 5% and therefore cannot compete on this level, but its 4G-capable spectrum is of significant interest to larger operators.

While Telenor Group’s most recent earnings (Q3 2016) were broadly positive, including an “all-time high) EBITDA, its Indian operations incurred a significant impairment charge which impacted its bottom line. Its Q4 earnings will be announced tomorrow.

An anonymous Telenor source noted that discussions between Telenor, Aircel and RCom had been underway since December 2016, but have been held up by a Supreme Court case related to how Aircel’s parent company Maxis Group acquired its 74% stake in Aircel.

The group’s owner, Ananda Krishnan, has now missed his deadline to respond to a summons to appear before an Indian court. Krishnan’s actions could result in Aircel having its 2G spectrum licence revoked, which could derail the proposed Aircel-RCom merger. In turn, this would sink Telenor’s proposal.

The Indian market looks set for a further shake-up with the confirmation that Vodafone India and Idea Cellular are holding merger talks. If a deal is agreed, the number two and three operators would combine to overtake current market leader Bharti Airtel.

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