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International Journal of Academic Research ISSN: 2348-7666; Vol.3, Issue-1(2), January, 2016 Impact Factor: 3.075; Email: [email protected]

Dr.Rama Krishna Chittajallu, Asst. Professor in Commerce, P.R.Govt.College(a), Kakinada, A.P.,

Key words: Relaiance Acquisition, merger of R.Com.&Aircel, merger scheme

and Investments for the potential merger. The potential combination will “The telecom industry is at a stage where exclude RCom's towers and optical fibre players are faced with high operational infrastructure, for which R.Com is costs, be it energy, infrastructure, sales proceeding with an asset sale. or distribution. Given this dynamic nature of the industry, it is inevitable for operators to consider such arrangements Limited, with each other to offer continued and founded by the late Shri Dhirubhai H seamless mobile services to customers” Ambani (1932-2002), is the flagship Reliance Communications and Aircel company of the . The begun to combine their telecom Reliance Group currently has a net worth operations to create India's second largest in excess of Rs 91,500 crore (US $15.3 mobile operator as intensifying billion), cash flows of Rs 10,200 crore (US competition fuels consolidation in a $1.7 billion) and net profit of Rs 4,700 crowded market. A pact for 90-day crore (US$ 0.8 billion). exclusive talks has been initiated with Reliance Communications is India's Aircel's majority owner, Malaysia's Maxis foremost and truly integrated Communications, and Sindya Securities International Journal of Academic Research ISSN: 2348-7666; Vol.3, Issue-1(2), January, 2016 Impact Factor: 3.075; Email: [email protected] service provider. The Russian economy. Sistema's investment Company has a customer base of over 118 portfolio comprises stakes in million, including over 2.6 million predominantly Russian companies from individual overseas retail customers. various sectors of economy, including Reliance Communications corporate telecommunications, utilities, retail, high clientele includes over 39,000 Indian and tech, pulp and paper, pharmaceuticals, multinational corporations including healthcare, railway transportation, small and medium enterprises and over agriculture, finance, mass media, 290 global, regional and domestic tourism, etc. Sistema is the controlling carriers. shareholder in most of its portfolio companies. Sistema's competencies focus Reliance Communications has established on improvement of the operational a pan-India, Next-Generation, integrated efficiency of acquired assets through (wireless and wireline), convergent (voice, restructuring and attracting industry data and video) digital network that is partners to enhance expertise and reduce capable of supporting best-in-class financial risks. services spanning the entire communications value chain, covering SISTEMA's global depository receipts are over 21,000 cities and towns and over listed under the symbol "SSA" on the 400,000 villages. Reliance London Stock Exchange (1 GDR is 20 Communications owns and operates the ordinary shares) and the ordinary shares world's largest next generation IP are listed under the symbol "AFKS" on enabled connectivity infrastructure, the Moscow Exchange. comprising over 280,000 kilometers of The Company reported revenues of RUB fiber optic cable systems in India, USA, 164.0 billion for the second quarter of Europe, the Middle-East and the Asia- 2015, and total assets of RUB 1,175.7 Pacific region. billion as at June 30, 2015. Sistema’s global depository receipts are listed under the symbol “SSA” on the London Stock Sistema is the publicly-traded diversified Exchange. Sistema’s ordinary shares are holding company in Russia and the CIS. listed under the symbol “AFKS” on the SISTEMA has its headquarters Moscow Exchange. Website: in Moscow, and operates a number of www.sistema.com consumer service businesses in the areas of IT and telecoms — Mobile Tele Systems, Moscow City Telephone is a communications Network, Sky Link, MTS India and service provider in Malaysia. Established in 1993. This is a major Headquartered in Kuala Lumpur, shareholder of companies serving over Malaysia, providing a variety of 100 million customers in the sectors of communication products, applications telecommunications, high technology, and value added services for consumers, radars and aerospace, banking, retail, large enterprises and small & medium mass-media, tourism and healthcare business owners. Maxis launched services. Malaysia’s first LTE network on 1 Today Sistema is a large private investor January 2013. Maxis' high speed internet operating in the real sector of the footprint is the largest in Malaysia, and International Journal of Academic Research ISSN: 2348-7666; Vol.3, Issue-1(2), January, 2016 Impact Factor: 3.075; Email: [email protected] were the first to bring the iPhone, communications), call conferencing and a BlackBerry and the Samsung Galaxy line variety of mobile plans. Maxis also of smart phones to the Malaysian provide online games and a music store market. Through their partnership with for its customers to download multimedia Astro. Maxis now offers fibre internet content. packages bundled with entertainment, Maxis' most popular service is its prepaid made available to customers at home and brand Hotlink, which currently serves on mobile devices. They provide multi- over 9.5 million customers in Malaysia. channel customer service; customers are able to reach Maxis service There are several high profile celebrities representatives via telephone, web and who have signed on as spokespersons for social media platforms. Maxis Call Centre Maxis, including Siti Nurhaliza, the was awarded the ‘Best of the Best’ Malaysian reality show honour at the 2012 Customer Akademi Fantasia's contestants, along Relationship Management and Contact with Jessy Wong The Diva and Arthur Centre (CCAM) Annual Awards, being the Brave and Fluffy.Maxis was the first the only service provider that awards company to launch LTE services in scholarships to children of their own post Malaysia on 1 January 2013, starting in paid customers. Maxis uses the dialling the Klang Valley region.Maxis operates prefixes of "012", "017", "014-2" and "011- GSM /GPRS/ EDGE, 2". The majority of the company's stake is WCDMA/HSPA+/DC- owned by billionaire Ananda Krishnan, HSPA, 4G LTE networks. and the company has about 12.9 million subscribers as of the fourth quarter of 2013. Sindya Securities Investments Private Limited is a Private Company As of May 2015, Maxis has 2G coverage of incorporated on 19 January 2006. It is 95% on populated areas, 3G at 88%, 4G classified as Indian Non-Government LTE at 59%, network modernisation at Company and is registered at Registrar of 81%. It is widely perceived that Maxis is Companies, . Its authorized best with network coverage and speed. share capital is Rs. 500,000,000 and its paid up capital is Rs. 260,100,000.It is Maxis provides a variety of mobile involved in Activities auxiliary to communication products and services. financial intermediation, except They offer prepaid data plans, call plans insurance and pension funding.[This and SMS plans, postpaid data plans, call Group includes activities involved in or plans and SMS plans, devices, wireless closely related to financial inter- broadband, fibre internet, international mediation other than insurance and roaming, MMS, WAP (over both GSM pension funding but not themselves and GPRS) and residential fixed line involving financial inter-mediation. services. For business customers, Maxis offer cloud computing, data storage, machine-to- is a result of alliance machine services, fixed high speed between Berhad internet, VSAT services (satellite based of Malaysia (74% equity) and Sindya International Journal of Academic Research ISSN: 2348-7666; Vol.3, Issue-1(2), January, 2016 Impact Factor: 3.075; Email: [email protected]

Securities & Investments Private Limited (26% equity). Aircel offers its customers, services and The Aircel Group, formed in 1994, offers products that are easy to understand and affordable and outstanding mobile use. All offerings are stimulating and at services to a vast subscriber base in the same time extremely unique as Aircel India. Aircel has a vision of delighting its continues to re-invent itself constantly to customers by giving them the respect deliver the best and most up-to-date they deserve. Our goal is to provide our services. The brand instils a feeling of customers with exemplary service and pride, confidence and reliance among all persistently look for new ways to surpass stakeholders by anticipating their desires their expectations. and fulfilling the same efficiently. Aircel commenced operations in 1999. In Aircel provides 3G service in Andhra our first decade of operations, we Pradesh, Assam, Bihar & Jharkhand, concentrated on building our foundations Chennai, Jammu & Kashmir, , in the southern part of the country, and , , North East, Orissa, soon emerged as the regional market Punjab, , UP East and West leaders. We worked hard and achieved Bengal. that success by remaining focused on growth opportunities. Soon after our company began with its expansion in Reliance Communications and Aircel 2005 and has now set its sight on begun to combine their wireless telecom becoming a pan India operator. Our operations to create India's second largest project pipeline is robust, allowing for mobile operator as intensifying sustainable long-term growth. competition fuels consolidation in a crowded market. A pact for 90-day In addition to our leadership position in exclusive talks has been initiated with Tamil Nadu, Aircel met with Aircel's majority owner, Malaysia's Maxis extraordinary success in the Eastern Communications, and Sindya Securities frontier circles. We pride ourselves on and Investments for the potential customer satisfaction and managed to merger. The potential combination will emerge as the market leaders in Assam exclude RCom's towers and optical fibre and North Eastern states within 18 infrastructure, for which R.Com is months of operations. During this period, proceeding with an asset sale. The our company gained a strong foothold in discussion are non-binding in nature. 10 circles, to provide better access to our Any transaction will be subject to due customers. The company is present in all diligence, definitive documentation and 23 telecom circles including Chennai, regulatory, shareholders' and other third Tamil Nadu, Assam, North East, Orissa, party approvals. Hence, there is no Bihar, Jammu & Kashmir, Himachal certainty that any transaction will Pradesh, , Kolkata, Kerala, result." Andhra Pradesh, Karnataka, , UP(West), UP(East), & In Dec, 2015 RCom entered a major pact , , Haryana , Madhya Pradesh, to acquire the Indian business of Russia's Punjab, and . Sistema, which operates under the 'MTS' brand, in a unique stock-cum-spectrum- fee payment deal. International Journal of Academic Research ISSN: 2348-7666; Vol.3, Issue-1(2), January, 2016 Impact Factor: 3.075; Email: [email protected]

merger with other partners to extend this privilege to its customers. They are already in advanced stages of talks with several operators across the country to As per the deal being negotiated, RCom put these agreements in place, A source shareholders will receive free listed from Gurdeep Singh, President and Chief shares in the combined wireless entity. Executive Officer (Wireless) Reliance This apart, the debt of Rs.10,000 crores Communications. Once in place, RCOM’s will be transferred to the separate listed 2G GSM customers will be able to roam combined entity. seamlessly on all partner networks, free of any additional cost. “All agreements with existing telecom operators are likely The merger will bring 9 million to be completed by the end of the second customers and around Rs 1,500 crore in quarter of the ongoing financial year. revenues to RCom. It would also help RCom extend the validity of spectrum in “This agreement will expand RCOM’s 800/850 MHz band in eight circles, network footprint at no upfront cost—a including Delhi and Kolkata, by 12 years ‘pay as you use’ model—and improve from 2021 till 2033. Reliance both service quality and operational Communications BSE -7.01 % (RCom), efficiencies,” Mr. Singh added. Aircel and Sistema (MTS) have begun The merger would create a company that initial talks for a three-way merger that holds roughly 20% of India’s rapidly could see the emergence of India's third growing cell phone market, and help close largest telco by subscribers.In the first the distance between it and much larger sign of sector consolidation, Reliance rivals Ltd. and Communications last month agreed to PLC’s India unit. As of September buy Russian conglomerate Sistema's 2015, Reliance had around 110 million Indian mobile phone business in an all- subscribers while Aircel had around 84 stock deal. This month it agreed to sell its million, according to the Telecom tower business to a group including TPG Regulatory Authority of India. Capital Management LP to cut a heavy debt load. The Aircel talks exclude those assets.If the deal happens, RCom-Aircel- The -led group has been MTS wireless combo will have over 150 looking at both consolidation and asset million customers in India and it will sales aggressively. On 14 hold hold close to 20 percent of the total December, reported that Reliance spectrum - highest in country - in Group could seek to reduce debt by more virtually every band currently available than 40% through asset sales. Stake sales to private players. This include the deal in its financial services businesses, along with MTS. Also, the monetisation of the with plans to sell telecom towers, optical tower and fiber assets will continue. Once fibre, cement and road assets, could net these deals go through, RCom will the group more than Rs.50,000 crore. become debt-free. According to the deal This is about 44% of the group’s the two companies will offer the 2G outstanding debt of Rs.1.14 trillion in ICR advantage to its customers in some September,2015 according to Capitaline, key circles, with the agreement being periodically expanded. Reliance is in International Journal of Academic Research ISSN: 2348-7666; Vol.3, Issue-1(2), January, 2016 Impact Factor: 3.075; Email: [email protected] which provides financial and market Rs 20,000 crore while RCom reported net data. debt of Rs 38,595 crore.Aircel is learnt to have very nearly closed a deal to sell its On 13 December,2015 brokerage CLSA 4G airwaves in the 2300 Mhz band to said R-Com’s impending tower deal could Bharti AirtelBSE -4.85 % for around Rs lower its consolidated debt by a 4,000 crore.The company has taken loans significant 60%. The operator had a debt from its shareholders and these can be of Rs.35,250 crore as on 30 September. converted into equity. The spectrum sale In addition to multiple infrastructure and conversion of loan to equity will help sharing deals with Reliance (towers Aircel reduce its debt to Rs 15,000 crore. and fibre), R-Com is also finalizing a RCom, on its part, according to sources, spectrum-sharing and trading deal with is on the verge of finding a buyer for its the company for its 800MHz spectrum, telecom towers. With the Viom Networks- CLSA noted. American Tower deal finalised at an enterprise value of Rs 21,000 crore, the “Given that Reliance Jio has 5MHz of Anil Ambani company is hopeful of 800MHz in only two of the top-six fetching close to Rs 20,000 crore for its industry ARPU (average revenue per 40,000 towers that come with a lease unit) circles and nine of the 22 circles, guarantee from 's this deal with R-Com is crucial as it Reliance Jio. The company is also hopeful would ensure a pan-India footprint on of divesting a part or all of its overseas 800MHz thus boosting its 4G LTE undersea cable arm, and use the funds to services,” CLSA said in the note. LTE, or retire debt.As a result of these actions, long-term evolution, is a 4th-generation, the total debt of the two companies could high-speed technology standard. fall to Rs 30,000 crore before the merger “Reliance Jio deals are aiding to unlock takes place, said one of the persons R-Com asset values while the reciprocal mentioned earlier. benefits from sharing network and spectrum would lower capex requirement. Further proceeds from the spectrum sharing/trading deals would be used by R-Com to pay the Rs.7,000 crore “The telecom industry is at a stage where liberalization fee for 800MHz spectrum players are faced with high operational and repay added debt, providing further costs, be it energy, infrastructure, sales upsides,” the CLSA note added. or distribution. Given this dynamic nature of the industry, it is inevitable for Shares of R-Com gained 2.39% to close operators to consider such arrangements atRs.85.70 on the BSE, while the with each other to offer continued and benchmark Sensex lost 0.56% to close at seamless mobile services to customers, 25,590.65 points. soured from Aircel Chief Operating Officer Kaizad Heerjee. Both RCom and Aircel are saddled with high debt which must be retired before a Aircel and RCom have operating profits merger can go ahead or even be of Rs 2,500 crore and over Rs 7,500 crore, considered, said bankers in the know.At respectively. Excluding the enterprise, last count, Aircel's debt stood at around International Journal of Academic Research ISSN: 2348-7666; Vol.3, Issue-1(2), January, 2016 Impact Factor: 3.075; Email: [email protected] undersea cable and tower businesses, shareholders will receive free shares in RCom's EBITDA (earnings before the new combined wireless entity, said a interest tax, depreciation and source with direct knowledge of the amortisation) from the mobility business matter. Reliance Communications will is estimated to be Rs 3,000-3,500 crore. continue to own its enterprise and undersea cable businesses. Neither Aircel nor RCom, independently, are likely to achieve significantly higher With a debt of about $6 billion, Reliance profitability as competition grows. But Communications is the most leveraged the three-way merger will create the among listed Indian carriers. Unlisted country's third-largest telco, behind Aircel is also battling a heavy debt Airtel and , and enable the burden, which rating agency ICRA said combined entity to leverage size and was about 185 billion rupees ($2.8 billion) synergies to enhance profitability. as of 2013. Prior to Closing of the Transaction, SSTL intends to pay off its Mr Mikhail Shamolin, President and existing debt. An appropriate payment / CEO of Sistema, intended that “The earn-out mechanism has been agreed in merger of SSTL and RCOM's telecom relation to disputed spectrum contiguity businesses is a milestone event. Despite charges claimed by DoT. The the numerous challenges the sector faced combination of wireless businesses, in recent years, the combination of two through the demerger of SSTL wireless leading data service providers is a clear business into RCOM for stock sign of progress for the Indian telecom consideration, will generate significant industry. They are confident that SSTL’s capex and opex synergies for mutual entry into the equity capital of RCOM as benefit. a strategic investor will strengthen the competitive position of the combined The Indian data market is witnessing company and provide subscribers with explosive growth, and SSTL's proven superior experience by fast tracking the strengths in that space will further growth of LTE technology in India. enhance RCOM's capabilities in delivering a superior experience to their Both RCom and Aircel operate their 2G valued customers. They are pleased that GSM services on the 1800 Mhz band, the addition of SSTL's valuable spectrum which can also be used for offering 4G holdings in the 800 - 850 MHz band will services after paying the government the strengthen RCOM's spectrum portfolio, auction-determined market price. The and extend our ability to provide world two also have 3G airwaves in the 2100 class 4G LTE services to their customers Mhz band. in 8 important circles in the country till The two companies already have the year 2033. infrastructure-sharing pacts which The merger of SSTL and RCOM's telecom enable users to interchangeably use their businesses is a milestone event. Despite networks. These pacts have also resulted the numerous challenges the sector faced in mutually opportunistic laying of in recent years, the combination of two networks and telecom tower footprint, leading data service providers is a clear which would mean a lesser effort to sign of progress for the Indian telecom reduce duplication. If the Aircel deal goes industry. They are confident that SSTL’s through, Reliance Communications entry into the equity capital of RCOM as International Journal of Academic Research ISSN: 2348-7666; Vol.3, Issue-1(2), January, 2016 Impact Factor: 3.075; Email: [email protected] a strategic investor will strengthen the is a sign of maturity and this shows that competitive position of the combined the Indian telecom business and the company and provide subscribers with regulations are maturing. This can be a superior experience by fast tracking the game changer for R Comm going forward. growth of LTE technology in India. Prima facie the rating for the company Moreover, they believe the completion of will remain unaffected by the merger, but this transaction will serve as an example RCom will benefit, as it will have an of growing business ties between Russia dditional 9 million data subscribers. It and India and encourage other will have access to 850 megahertz investments between the two countries. spectrum, which is one of the most This transaction underscores SSTL’s efficient waves in Indian circles. It will track record in building the fastest- also enhance RCom's ability to make growing data services provider. This is an further arrangement of spectrum sharing exciting new chapter for India’s telecom and trading with Reliance Jio in future. industry and we look forward to The merger will help RCom launch its leveraging our companies’ combined own 4G services later on. All in all. experience for the development of LTE in The rating agency has BB - rating and India. 'stable outlook' on the telecom operator. The Closing of the transaction, expected As per the deal, SSTL will acquire 10 per in the second quarter of 2016, is subject cent equity in RCom, with the latter to customary conditions precedent, assuming the liability to pay the DoT including inter alia applicable corporate, installments for former's spectrum, regulatory and other approvals. amounting to Rs 392 crore per annum for the next 10 years. However, SSTL will Post Closing of the deal, minority bear the burden of its existing debt, investors of SSTL will be given an option RCom said in a filing to BSE. MTS has a to exchange their shares in SSTL with debt of around Rs 3,800 crore. "The the pro-rata RCOM shares held by SSTL. combination of our wireless businesses, The merger will bring 9 million through the demerger of SSTL wireless customers and around Rs 1,500 crore in business into RCom for stock revenues to RCom. It would also help consideration, will generate significant RCom extend the validity of spectrum in capex and opex synergies for mutual 800/850 MHz band in eight circles, benefit," said Gurdeep Singh, President including Delhi and Kolkata, by 12 years and Chief Executive Officer — Consumer from 2021 till 2033. Business at RCom. Following the development, the stock If the Aircel deal goes through, Reliance climbed 3.92 per cent to hit a high of Rs Communications shareholders will 78.20 on BSE. The decision by the RCom receive free shares in the new combined board has paved the way for the first wireless entity, said a source with direct major consolidation in the domestic knowledge of the matter. Reliance telecom sector since 2009. Communications will continue to own its enterprise and undersea cable businesses. This is undoubtedly a very positive With a debt of about $6 billion, Reliance development. It has sent the right signals Communications is the most leveraged to global investors. M&A in any business among listed Indian carriers. Unlisted International Journal of Academic Research ISSN: 2348-7666; Vol.3, Issue-1(2), January, 2016 Impact Factor: 3.075; Email: [email protected]

Aircel is also battling a heavy debt expand its access to 3G airwaves and add burden, which rating agency ICRA said 4G capacity to its portfolio.Increasing was about 185 billion rupees ($2.8 billion) competition will make life difficult for as of 2013. bottom four or five telecoms carriers, adding more such deals could be expected next year. Ltd is the current It is definitely a step in the right market leader.Reliance Communications' direction as the industry has to move India operations that include its wireless towards consolidation. It is difficult for so business accounted for 82 percent of its many telcos to survive in a extremely cut- revenue of about 47 billion Indian rupees throat environment with low ARPUs. ($710 million) for the three months to Increasing competition will make life September. difficult for bottom four or five telecoms If the Aircel deal goes through, Reliance carriers, adding more such deals could be Communications shareholders will expected next year. receive free shares in the new combined This is undoubtedly a very positive wireless entity, said a source with direct development. It has sent the right signals knowledge of the matter. Reliance to global investors. M&A in any business Communications will continue to own its is a sign of maturity and this shows that enterprise and undersea cable businesses. the Indian telecom business and the With a debt of about $6 billion, Reliance regulations are maturing. This can be a Communications is the most leveraged game changer for R Comm going forward. among listed Indian carriers. Unlisted The Reliance mobile phone business is Aircel is also battling a heavy debt India's fourth-biggest by customer burden, which rating agency ICRA said numbers while Aircel ranks fifth. The was about 185 billion rupees ($2.8 billion) combined business would surpass as of 2013. The discussions between R- Vodafone's Indian operation as number Com and Aircel are non-binding and any two in the sector. India's telecoms market transaction will be subject to due is the world's second-biggest behind diligence, along with shareholders and China in terms of mobile phone other third-party approvals. subscriptions, but tough competition means low margins for the 10 carriers. In the first sign of sector consolidation, 1. http://www.sistema.com Reliance Communications agreed to buy 2. http://www.rcom.co.in/Rcom/aboutus/ Russian conglomerate Sistema's Indian ir/ir_pressrelease.html mobile phone business in an all-stock deal. Next it agreed to sell its tower 3. http://www.Aircel.Com business to a group including TPG 4. Financial Express Capital Management LP to cut a heavy debt load. The Aircel talks exclude those 5. Financial Times assets. 6. Business today Reliance Communications has a pact with 7. India today Reliance Jio to share some airwaves. A deal with Aircel, majority owned by Malaysia's Maxis Communications, will