RCom to buy SSTL's Indian wireless biz

In a sign of inevitable consolidation in the telecom industry, Anil Ambani controlled Reliance Communications (RCom) has decided to demerge Sistema’s Indian wireless business, carried on by Sistema Shyam Teleservices (SSTL) into RCom.

As result of the demerger, SSTL will acquire and hold a 10 per cent equity stake in RCom. In addition, RCom will assume the liability to pay the DoT instalments for SSTL’s spectrum, amounting to Rs 392 crore per annum for the next 10 years. Prior to closing of the transaction, SSTL intends to pay off its existing debt. An appropriate payment/earn-out mechanism has been agreed in relation to disputed spectrum contiguity charges claimed by DoT, RCom said.

The closing of the transaction is expected in the second quarter of 2016, is subject to customary conditions precedent, including corporate, regulatory and other approvals. Post closing of the deal, minority investors of SSTL will be given an option to exchange their shares in SSTL with the pro-rata RCom shares held by SSTL, RCom said.

RCom will acquire approximately nine million customers and approximately Rs 1,500 crore of annual revenues by virtue of the transaction.

In addition, RCom will acquire SSTL’s 800/850 MHz band spectrum, ideally suited for 4G LTE services, to complement its own unique nationwide footprint of minimum 5 MHz contiguous 800/850 MHz spectrum aggregating 148.75 MHz. The acquisition of this spectrum will extend the validity of RCom’s spectrum in 800/850 MHz band in eight important circles by a period of 12 years from 2021 till 2033 (Delhi, Gujarat, Tamil Nadu, Karnataka, Kerala, Kolkata, UP (West) and West Bengal), RCom said. RCOM has a customer base of over 118 million, including over 2.6 million individual overseas retail customers.

“We are delighted to welcome Sistema Shyam TeleServices as a valued shareholder and partner in Reliance Communications. The combination of our wireless businesses, through the demerger of SSTL wireless business into RCom for stock consideration, will generate significant capex and opex synergies for mutual benefit,” RCom consumer business president and chief executive officer Gurdeep Singh said.

The Indian data market is witnessing explosive growth, and SSTL’s proven strengths in that space will further enhance RCom’s capabilities in delivering a superior experience to our valued customers. We are pleased that the addition of SSTL’s valuable spectrum holdings in the 800-850 MHz band will strengthen RCom’s spectrum portfolio, and extend our ability to provide world class 4G LTE services to our customers in eight important circles in the country till the year 2033, Singh added.

“The merger of SSTL and RCom’s telecom businesses is a milestone event. Despite the numerous challenges the sector faced in recent years, the combination of two leading data service providers is a clear sign of progress for the Indian telecom industry. We are confident that SSTL’s entry into the equity capital of RCom as a strategic investor will strengthen the competitive position of the combined company and provide subscribers with superior experience by fasttracking the growth of LTE technology in India,” Sistema president and chief executive officer Mikhail Shamolin said.

“We believe this transaction underscores SSTL’s track record in building the fastest-growing data services provider. This is an exciting new chapter for India’s telecom industry and we look forward to leveraging our companies’ combined experience for the  development of LTE in India,” Sistema Shyam TeleServices chief executive officer Sergey Savchenko said.