Indian telecoms operator Reliance Communications (RCom) has agreed to buy Russian conglomerate Sistema’s Indian mobile phone business with a share swap that marks the >first major deal in seven years in a crowded and indebted sector.
The agreement will see
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RCom has also agreed to cover payments for mobile airwaves to be allotted to Russian billionaire Vladimir Yevtushenkov’s Sistema, it said.
RCom and Sistema did not provide a value for the deal, but one person with direct knowledge of negotiations put the total at close to Rs.4,500 crore ($686 million).
Monday’s announcement comes at a critical time for a fast-growing but hugely competitive industry: just weeks ahead of the long-awaited launch of telecoms operations by Reliance Industries, the conglomerate controlled by Ambani’s brother, Mukesh Ambani.
India’s mobile phone market is the world’s second-biggest after China by number of customers, but its phone carriers operate on wafer-thin margins and cut-throat competition that have dented their balance sheets.
Reliance Industries’ deep pockets are expected to pile pressure on smaller players, most of them heavily in debt.
Sistema Shyam Teleservices Ltd, the local unit of Sistema, has less than 1 per cent share, with some nine million customers and Rs.1,500 crore in annual revenue, in a market that has over 10 players. But it owns precious bandwidth that services the high-speed fourth-generation, or 4G, network, which is expected to see a huge demand as more Indians use their smartphones and tablets to shop, bank or surf the Internet.
“Spectrum is the key asset required for telecom carriers to gain scale,” said Neil Shah, research director at Counterpoint Technology Market Research. “The customer addition is OK, but with this added spectrum, now RCom will be present in circles they weren’t.”
Last month, RCom said it would partner >Reliance Industries’ telecoms unit, Jio , to trade and share mobile airwaves and offer 4G services, which, in turn, can use the former’s 2G and 3G networks when needed. The partnership was a rare sign of cooperation between the two Ambanis. Sistema’s India unit scaled back its operations in 2013 when it had to buy new telecommunication permits after earlier permits were cancelled following a broader licensing scandal.
On Monday, RCom said it would pay what Sistema owes for its mobile broadband spectrum, which works out to about Rs.390 crore per year for the next 10 years.
Stocks up The stock climbed 6.18 per cent to settle at Rs.79.90 on BSE. At NSE, shares of the company rose 6.3 per cent to end at Rs.80.05.
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