Why MTS India is a good deal for Reliance Communications

Reliance CEO Gurdeep Singh
Anil Ambani-promoted Reliance Communications today announced the deal to acquire small rival MTS India.
Several factors contributed to the consolidation.

The Indian telecom operator will be offering 10 percent stake and spending Rs 3,920 crore in 10 years to add MTS India to its kitty.

# MTS has an ARPU of INR 134, up 5% in Q2
# Has 9 million customers in 9 circles
# Data card subscriber base of 1.9 million, up 8.9%
# MTS HSD services cover over 1,000 towns
# OIBDA loss of INR 54.1 crore
# OIBDA positive in 6 out of its 9 operating circles
# invested Capex of $5.3 million during Q2 2015
# Reliance mainly focusses on GSM technology, but investing in a CDMA operator
# MTS does not have 3G services
# Needs to pay Rs 3,920 crore to DoT in 10 years
# Lack of clarity on job continuity to MTS employees


# Reliance Communications can launch 4G in 8 circles
# to avoid Rs 15,000 crore payment for renewing spectrum in 2021
# No board position to MTS
# Acquiring 3.75 MHz of spectrum in 850 MHZ band
# Strengthens deal with Reliance Jio Infocomm

Reliance Communications will be acquiring 3.75 MHz of spectrum in 850 MHZ band in circles such as Delhi, Gujarat, Tamil Nadu, Karnataka, Kerala, Uttar Pradesh (West), Kolkata, West Bengal and Rajasthan.

MTS India’s spectrum is valid for 18 years till 2033 (excluding Rajasthan till 2018). In effect, the validity of Reliance Communications spectrum by 12 long years in Delhi, Gujarat, Tamil Nadu, Karnataka, Kerala, Uttar Pradesh (West), Kolkata and West Bengal.

Reliance Communications will have the largest holding of 850 MHz band spectrum — suited for 4G LTE services — aggregating 148.75 MHz in 8 circles till 2033.

Reliance Communications will be adding 9 million customers. MTS India has clocked revenue of approx. Rs 1,500 crore per annum.

There will be significant Capex and Opex synergies for Reliance Communications.

Reliance Communications will pay Rs 392 crore per annum to DoT for the next 10 years.

Reliance Communications will be eliminating the need to pay Rs 15,000 crore in 2021 for acquiring 850 MHz spectrum in 8 circles on expiry of its own spectrum. The company calculated Rs 15,000 crore based on the auction price of 2015 and accreted interest policy of DoT for future auctions.

MTS India will be paying off all its existing debt prior to closing.

Reliance Communications will not be giving any board seat or veto rights to SSTL. MTS will hold 10 percent stake in Reliance Communications.

Reliance Communications will eliminate spectrum continuity risk for minimum 15 years in 18 out of 22 circles – between 850, 900, 1800 and 2100. Balance 4 circles Andhra Pradesh, Maharashtra, Haryana and UP (E) still have 6 years to go.

SSTL’s 800 / 850 MHz band spectrum, ideally suited for 4G LTE services, will complement its own footprint of minimum 5MHz contiguous 800 / 850 MHz spectrum aggregating 148.75 MHz.

Gurdeep Singh, president & chief executive officer, Consumer Business, Reliance Communications, said: “The combination of two wireless businesses will generate significant Capex and Opex synergies for mutual benefit.”

Baburajan K
[email protected]