Why Reliance Communications is looking at small rival MTS India

Industrialist Anil Ambani-led Reliance Communications on Monday said it has entered into exclusive talks with the Russia-based Sistema for a potential merger of its Indian arm through a stock swap. Analysts see a strategic fit between the two compaies.

“The discussions are indicative and non-binding in nature, and remain subject to due diligence, definitive documentation and approvals, as may be necessary. There is no certainty that any transaction will result,” the company said in a filing with stock exchanges.

While Reliance Communications claims a subscriber base of more than 118 million in voice and data market with a pan-India presence, Sistema Shyam TeleServices, the Indian arm of the Russian group, claims 10 million across nine circles under the MTS brand.

Both are major players in the CDMA segment in India.

“This is a welcome beginning of some kind of consolidation. Two companies have a strategic fit. MTS has 4G spectrum that Reliance Communications can use, which is good for it. It is sensible for both of them,” Mahesh Uppal, director of telecom consultancy firm Com First, told IANS.

Reliance Comm FY 2014 result
“In India we have seven-eight operators in one circle. Globally it is three operators in a single market. Therefore, this kind of consolidation is imminent,” Rishi Tejpal, principal research analyst, Gartner, told IANS.

“In the coming days, we will see more such mergers and acquisitions in the telecom space in India,” Tejpal said, adding such consolidations will have a good impact on margins and bottomlines of these companies as well.

Reliance Communications is the flagship company of the Anil Ambani-led group. Its customer base is over 118 million, including 2.6 million individual overseas. The coverage in India spans 21,000 cities and towns and over 400,000 villages.

It also has a 280,000-km fibre optic cable systems in India, the US, Europe, Middle East and the Asia-Pacific region.

The Indian arm of Sistema is a joint venture involving equity participation by Sistema of Russia, the Russian Federation and the Shyam Group of India. Sistema is the majority shareholder in the company which operates its telecom services under the MTS brand.

Earlier this month, Sistema Shyam said its non-voice revenues continued to grow at double-digits growth and increased 11.1 percent during the first quarter of 2015. The data card subscriber base for the quarter was up 9.4 percent at 1.8 million subscribers.