MTS Sistema Merger with Reliance Communications – Mukesh Ambani Master Stroke or 4G LTE Play ?

RCom MTS MergerThe great Indian Telecom M&A is finally unfolding. Before we go into the Indian Telecom M&A, I’d like to elaborate about a great Chairman Hindustan Unilever [then Hindustan Lever Ltd] had in the 1990s – S M Datta. That was precisely the time when my tryst with Equity Markets had began even though I was still in High School. I was an avid reader of Business Today & Business India and was deeply influenced by HLL Chiarman Mr. Datta. During his tenure he masterminded the M&A for all the companies Lever Brothers wanted to takeover in India using HLL. Mr. Datta got Brooke Bond India & Lipton India merged separately and finally HLL tookover the combined entity, totally 6 during his tenure and also laid down the future roadmap for Levers in India. Drawing parallel, I’m wondering if Mukesh Ambani wants to do the same in Telecommunications ? Let Reliance Communications takeover MTS Sistema. Meanwhile RJio will takeover Videocon Telecom at some point as I have already elaborated about their spectrum synergy. Later RJio takes over RCom and all the companies will hive off their Telecom Infrastructure assets creating a giant Telecom Services & Infrastructure company. I can’t be sure of RCom & RJio merger in future but corporate moves by Anil Ambani point in that direction – Anil gets into Finance, Power, Defence & Infrastructure exiting Telecom where he hasn’t been able to carve a niche for himself despite driving the business for a decade. Mukesh & Akash Ambani’s Big Plans for Reliance Jio Infocomm are extensively covered here.

What is the Synergy for Reliance Communications to takeover MTS Sistema ?
During the corrupt and chaos regime of Congress Government everybody wanted a pie of Indian Telecom Services. However, enough was enough and Telecom Spectrum Scam took centre stage and pushed the Congress Government into Paralysis leaving bad taste in the mouth of new entrants – DoCoMo, Uninor, Sistema, etc. Finally, time has come to facilitate the exit these players to struggling stay afloat forget Free Cash Flow generation 🙂

If RCOM were to acquire MTS, its subs market share would improve by 70 bp to 13.1% and RMS to 6.5%. The potential combined market share is well within the 50% limit prescribed by the Department of Telecom for M&A. More importantly, a potential acquisition would improve RCOM’s market share rank by 1 or 2 places in 6 circles.

Spectrum of Merged Entity – RCom & MTS Sistema
MTS holds liberalized spectrum in 8 circles. RCOM thus would have to pay the government a discovered price only for the Rajasthan circle, as the spectrum in this circle was administratively allocated to MTS. Rajasthan is the only circle where RCOM currently has less than 5 MHz in the 800 MHz band, a circle where MTS holds 5 MHz of contiguous spectrum. If the transaction goes through, RCOM could liberalize this spectrum before offering LTE services per government guidelines. Also, the potential combined spectrum holding of RCOM and MTS in the 800 band would remain within the maximum limit of 10 MHz.

Combined Spectrum of RCom & MTS Sistema in 800Mhz band Suitable for 4G LTE / Mobile Broadband Servicesrcom mts sistema combined spectrum
Stay tuned will get more updates if I hear anything from Insiders or Market Circles but difficult in the Narendra Modi’s conundrum as CEOs are keeping close vigil on their executives and playing cards holding them close to their chest.

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