The Jio effect: Reliance and Aircel circle the wagons

Less than two weeks after new entrant Jio dropped its ‘loads of stuff for free’ bombshell on the Indian market two of its largest competitors have decided to join forces.

Reliance Communications is merging with the Indian wireless business of Maxis Communication – otherwise known as Aircel – in the largest consolidation of the Indian telecoms sector to date. The resulting company will account for 18% of Indian mobile subscribers, according to Ovum’s WCIS service, which will take it to third place behind Bharti and Vodafone.

Uniquely for a corporate merger, synergies are anticipated. “Together with our partners, MCB, we are delighted to have taken the lead in consolidation of the Indian telecom sector, first, with RCOM’s acquisition of the wireless business of SSTL (Sistema / MTS), and now, with the combination of our business with Aircel Ltd in a 50:50 Joint Venture with MCB.” said Anil D. Ambani, Chairman of Reliance Group. “We expect this combination to create substantial long term value for shareholders of both, RCOM and MCB, given the benefits of the wide-ranging spectrum portfolio and significant revenue and cost synergies.”

“This deal further reinforces MCB’s commitment to India,” said an unnamed MCB spokesperson. “Since acquiring Aircel in 2006, MCB has invested in excess of INR 35,000 crore (USD 5.2 billion) into Aircel, making this one of the largest foreign investments into India, not only in the telecom industry but across all sectors. The magnitude of this investment, and the further equity commitment in support of this deal, are underpinned by MCB’s belief in the long term growth potential of both India and the Indian telecom sector.”

Various other numbers were chucked about and the consolidation of debt is considered a big deal, considering how much Indian telcos has spent on spectrum and infrastructure in recent years. But ultimately this move seems to be bowing to the inevitable following the arrival of the Jio cowboys. Everyone knows trading conditions are going to be tough in India for some time so it makes sense to start consolidating immediately.