Aircel’s revenue market share stands at 5.59% in March 2016 (5.71% in the September quarter).
Reliance Communications Ltd (R-Com) and Aircel Ltd are likely to complete the merger of their wireless operations by the end of the month, a top Reliance Group official said last week. Investors are losing patience. The two companies had begun discussions about six months ago, and R-Com shares have fallen by 45% since then.
Meanwhile, R-Com’s competitive position has deteriorated considerably, and threatens to fall further thanks to the disruption caused by the withdrawal of CDMA services last month. Based on revenue market share, Aircel appears to be in a far better position.
In the July-September 2015 quarter, R-Com had a stand-alone revenue market share of 5.49%, according to data collated by the Telecom Regulatory Authority of India (Trai). Its share fell to 4.96% in the January-March 2016 quarter.
R-Com’s revenues have fallen sharply in five circles where it did not bid for renewal spectrum in the 900 megahertz band in the March 2015 auction. As a result, it discontinued 2G services and attempted to migrate customers to its 3G network. In the past two quarters, the company’s revenue market share in these five circles has nearly halved from 8.3% in the September quarter to 4.2% currently.
In December, when the two companies said they had entered into non-binding discussions, one of the factors in favour of the merger was that the combined entity would have a strong No. 2 position in seven circles. Now, because of a sharp fall in R-Com’s revenues in Bihar and Odisha, the combine will no longer enjoy the No. 2 position in these circles. It’s true that the combine will be No. 2 in five circles—Assam, Himachal Pradesh, Jammu and Kashmir, the North-East and Tamil Nadu—but note that Aircel is already No. 2 in three of these circles on its own strength.
Of course, all of this is not to say that R-Com does not bring anything to the table. But if there is a similar drop in revenues because of the withdrawal of CDMA services, its competitive position will look weaker vis-à-vis Aircel.
Aircel’s revenue market share stands at 5.59% in March 2016 (5.71% in the September quarter). Even after adding the share of its recent acquisition, Sistema Shyam TeleServices Ltd, R-Com’s consolidated market share has fallen from 6.29% in the September quarter to 5.68% in the March quarter.
Certainly, revenue market share isn’t the only parameter that the two companies will look at while deciding on the merger. According to an analyst with a domestic institutional brokerage firm, thanks to R-Com’s dongle business, its wireless operations are more profitable vis-à-vis Aircel. Then there are the various arrangements it has with Reliance Jio Infocomm Ltd to use its 4G-LTE network. Both R-Com and Aircel are so laden with debt that a new network roll-out is out of question.
As pointed out in this column earlier, chances of survival for the two companies are bleaker by virtue of just being bit players in the majority of circles they operate. An analyst with a domestic institutional broker says that when two heavily indebted companies come together, it’s foolhardy to expect the outcome to be very good.
To be sure, both companies have reportedly decided that they will only bring a portion of their existing debt into the proposed joint venture.
A moot question is what will happen to the remaining debt. In Aircel’s case, while it has raised some money by selling spectrum, it’s not clear what it intends to do with its remaining debt.
Needless to say, things will get clearer if and when the two companies announce the terms of the deal, as well as financial details of their wireless operations.
Till then, as investors appear to have concluded, it’s best to stay on the sidelines.
Reliance Group companies have sued HT Media Ltd, Mint’spublisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.
http://www.livemint.com/Money/ibv4pUQLsHHE27yXiL4sgI/RComAircel-a-merger-of-equals.html
Source: Mint