Aircel, Tata and Sistema (MTS) in Talks to Create 3rd Largest Operator

In a surprise move to Indian telecom industry it has been reported that country’s three mobile operator – Aircel, Tata Docomo and MTS India (SistemaShyam) are in talks to merge into single entity. Though the talks are in early stage and three-way merger could be complicated as Govt is yet to bring the M&A policy for Indian telecom.

As reported by Economics Times if the deal materializes, it would be a game changer for the market as the merger entity will account for 15.5% of market share and spot itself in the 3^rd position ahead of Reliance Communications (14.4%) and Idea Cellular (14.3%). Currently Airtel holds 21.86% and Vodafone holds 17.75% market share. However Airtel, Vodafone, Idea and Reliance enjoys more than 80% active subscriber base, while the merger entity can have only 65% active subscribers.

There were time-to-time reports about mergers of Tata-Aircel, MTS-Aircel and Tata-MTS. But it now seems a third-way merger is to be anticipated.

Tata Teleservices, which has Japan’s NTT Docomo as 26% shareholder has Rs 23,000 croredebts, while Malayasia’s Maxis and India’s Apollo Hospitals controlled Aircel has Rs 22,000 croredebts. There have been reports that NTT Docomo wants to leave Indian venture and Maxis wants to sell off its stakes in Aircel. Cash rich Sistema can be the savior for both companies. However when three companies merger into one, there will be huge saving on sharing infra and capital expenditure. Sistema is going to be the majority shareholder in the merger company, that’s for sure.

The merger entity will have pan-India 2G GSM spectrum, 3G spectrum in 19 circles (apart from Delhi, Mumbai and Himachal Pradesh) and CDMA spectrum in 19 circles (apart from J&K, North East and Assam).

Branding would be different, I think Aircel brand will be killed off. Sistema will push its MTS brand for CDMA and GSM services but Tata will try to put Tata tag on the branding. It would be interesting. Medianama already proposed a name for merger company – Air-Sis-Ta.

Whatever it comes, we have to wait for Government’s merger & acquisition rules and regulation which is due for a long time. I don’t think the merger will be done 3-way initially, first two companies will merge and then another merger with 3^rd company is expected.

There is another factor which may cost huge for the merger. If Government asks huge amount for retaining spectrum it will not help the M&A game play.