Is It Curtains For Brand RCom Post Aircel Merger?

by CXOtoday News Desk    Mar 16, 2017

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It could be curtains for Anil Dhirubhai Ambani Group company Reliance Communications (Rcom), an iconic brand in India, after the telco got regulator approval for its merger with Aircel. This would be the end of RCom as a consumer brand as the new entity may operate under the Aircel brand, believe experts. 

RCom said on Wednesday that market regulator Securities Exchange Board of India (Sebi) as well as stock exchanges National Stock Exchange of India Limited (NSE) BSE Limited (BSE) have approved the merger with Aircel, making it [the new entity] the country’s third-largest telecom operator.

Before the company founded by Dhirubhai Ambani was split among the brothers, Reliance Infocomm (later renamed as RCom) had shaken up the telecom sector in the country by reducing call costs drastically right after it was established in 2002. It was in the same year that RCom  launched CDMA services nationwide.

In 2008, Reliance Communications launched GSM services. and soon after in the 2010 spectrum auction, the telco paid Rs 58,642.9 million for 3G spectrum in 13 circles including Delhi, Mumbai, Kolkata, Punjab, Rajasthan, Madhya Pradesh, West Bengal, Himachal Pradesh, Bihar, Odisha, Assam, North East and Jammu & Kashmir.

On 25 May 2012, RCom announced a price reduction of 51% on its 3G services. A year later, RCom announced its partnership with Lenovo to market co-branded smartphones in India. The smartphones were said to use the Android operating system and have dual-core processors. In 2015, it launched CDMA in REV. B technology in non 3G circles.

Read more: Reliance Jio Spurs Competition, Consolidation Among Telcos

In April 2016, RCom informed its CDMA subscribers that it would be shutting down its CDMA operations, and that all CDMA subscribers would be migrated to GSM and LTE networks, which was slated to be completed in September that year. However, on 14 September 2016, RCom and Maxis Communications (owners of Aircel) announced that they would merge their mobile network operations. The merged entity will, however, carry a debt of nearly Rs. 28,000 crore — RCom and Aircel will each contribute half that amount into the debt pool and is expected to be completed by mid-2017.

The deal is the largest consolidation in history, and will create the fourth largest mobile network operator in the country by subscribers and by revenue. And even though RCom will continue to operate in the enterprise segment and data centre businesses as a standalone entity, the ‘Reliance Communication’ brand may not exist.

This in effect means that there will be only one Reliance brand in the market offering mobile services — Reliance Jio. Rjio is promoted by billionaire Mukesh Ambani, while younger brother Anil Ambani owns RCom, ET mentions in a news report.

In fact, entering the mobile service space was considered to be the brainchild of Mukesh Ambani, but it was Anil Ambani who walked away with the telecom company after the split. Mukesh Ambani had to wait close to a decade to re-enter the telecom sector as a non-compete clause with Anil kept him away. 

RCom and Aircel’s Malaysia-based promoters Maxis Communications Berhad will hold 50 per cent each in the venture, with equal representation on the board. RCom had earlier merged with Sistema JSFC’s Indian operations — MTS — under which the Russian company holds a 10 per cent stake in RCom. First, RCom will demerge its existing cellular business that has about 88 million subscribers, and then merge it with Aircel. However, other businesses such as tower assets and fixed-line enterprise units will continue to remain with RCom, a statement said. 

A number of deals over the past few months further suggest that the sector will be ruled only by a handful of large telecom operators, compelling the weaker telcos to exit altogether, said Fitch Ratings in a statement. The rating agency further warned that the ongoing consolidation drive will also lead to massive layoffs in the Indian telecom industry with as many as a third of over three lakh employees becoming redundant in the next 18 months as consolidation plays out.