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RCOM to take over SSTL mobile business through share swap deal

2 Nov 2015

Reliance Communications (RCOM) has agreed to acquire the wireless business of Sistema Shyam Teleservices (SSTL), the Indian telecoms arm of Russia’s Sistema through a stock swap deal. Under the agreement, SSTL’s mobile business will be demerged into RCOM and SSTL will take a 10% equity stake in RCOM. The transaction will see RCOM acquire SSTL’s LTE-suitable spectrum in the 800MHz range, thereby extending the validity of RCOM’s 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. RCOM will assume the liability to pay the outstanding instalments to the Department of Telecommunications (DoT) for the spectrum, equating to around INR3.92 billion (USD59.83 million) per year for the next ten years. Prior to the closing of the transaction, however, SSTL intends to pay off its existing debt. RCOM will also acquire around nine million subscribers, and annual revenue of around INR15 billion.

RCOM President and CEO Gurdeep Singh commented on the deal: ‘The combination of our wireless businesses… will generate significant CAPEX and OPEX synergies for mutual benefit. The Indian data market is witnessing explosive growth, and SSTL’s proven strengths in that space will further enhance RCOM’s capabilities in delivering a superior experience to our valued customers. We are pleased that the addition of SSTL’s valuable spectrum holdings in the 800MHz-850MHz band will strengthen RCOM’s spectrum portfolio, and extend our ability to provide world class 4G LTE services to our customers in eight important circles in the country until 2033.’

The merger will represent the first consolidation in India’s crowded wireless market in more than five years. According to TeleGeography’s GlobalComms Database, there are currently twelve active cellcos in India, with a 13th, Reliance Jio Infocomm (RJIL) preparing to launch. Each circle has at least four operators, although most have more leading to a scarcity of spectrum for each cellco. Despite the growing demand for merger and acquisition deals in recent years, the nation’s wireless providers have been put off making any such agreements due to a lack of clarity from sector regulators. Indeed, Bharti Airtel’s recent failed attempt to acquire Loop Mobile prior to the latter’s closure at end-2014 was hampered in part by a disagreement between the Telecom Regulatory Authority of India (TRAI) and the DoT over whether the acquisition of Loop’s subscriber base by Airtel would violate mobile number portability (MNP) rules.

India, Reliance Communications (RCOM), Sistema Shyam TeleServices (SSTL, MTS India)

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