The merger of the wireless business of Reliance Communications (RCom) with Aircel will enable the new entity to compete strongly with its peers, according to India Ratings and Research (Ind-Ra).
The combined RCom- Aircel entity will now be the third largest telecom entity in India by subscriber base, thus moving ahead of Idea Cellular.
This development, coupled with RJio’s penetration strategy, will spur competition in the sector and, in turn, push tariffs down, it said.
Ind-Ra believes that the spectrum acquisition strategy, particularly around 4G, is an important driver for consolidation in the telecom sector. “This deal provides RCom access to the superior 800MHz band in eight circles with extended validity till 2033, as its own spectrum is scheduled to expire in 2021-22.
The merged entity will have 448 MHz spectrum, which is about 17 per cent of the total spectrum held. It is the third largest spectrum holding, following 770 MHz of Bharti and 596 MHz of RJio,” the research agency said. The top five circles of Aircel are Assam, J&K, UP East, Bihar and Gujarat, while those of RCom are Bihar, Tamil Nadu and Chennai, Delhi and Mumbai.
The merged entity will be positioned as the second largest in the Bihar circle, after Bharti, and overtaking Vodafone and Idea, which were number two and number three respectively.
In the Tamil Nadu and Chennai circle, the merged entity will vie for the second spot with Vodafone, which is ranked second, after Bharti.
Need for parental supportHowever, both RCom and Aircel have significant debt and their ARPUs are below the industry average, as evident from their low standalone revenue market share and Aircel’s presence in low ARPU generating circles.
Therefore, Ind-Ra believes the merged entity will continue to depend upon the parents’ support for fund infusion for growth capex.
An analyst at Merrill Lynch said: “RCom has been losing revenue market share and going forward we would expect the same trend persisting for the wireless business given lack of strong brand, lower capex investments and expected increase in market competition post the Jio launch.”