RCOM and Aircel’s Merger Plan On Backfoot
Reliance Communications (RCom) canceled the merger plan with Aircel. With this, two telecom companies trapped in debt have suffered a setback to the expectations of betterment. From the proposed merger entity, it expected a competition from strong competitors such as Bharti Airtel and Reliance Jio and better performance in the longer term.
In a statement issued on behalf of Reliance Communications, owned by Anil Ambani, it stated that with mutual consent, the merger agreement with Aircel was allowed to expire. Various regulatory uncertainties, interventions by legal and inherent selfish elements are being delayed in obtaining related clearances for the proposed deal. RCom also said that the lack of finance from banks has affected the industry due to heavy competition and central bank guidelines in the industry. Consequently, the issue of the merger agreement is overdue to various difficulties. Aircel did not respond to queries sent through email.
RCom and Aircel are struggling with the decline in revenue, increases in losses and decreasing user base. Both the companies are under a debt of more than Rs 45,000 Crore and Rs 20,000 Crore, respectively. These companies were expecting their wireless business to become the fourth strong player in the Indian telecom market. Rivalry and profits of the telecom industry have been hit by a ruthless price war that started with Reliance Jio’s entry, and companies have been forced to consolidate. Due to this competition, number two and number 3 telecom companies, Vodafone India and Idea Cellular, respectively, have to be strong for the merger and approval is being sought for this. RCom said, “Unlived free voice offers and profits of traditional 2G/3G mobile business have been shattered due to unjustified pricing by all the players of the industry.”
To fix 60% of its debt for RCom, merger with Aircel and Tower Steak Cell in Canada was crucial to Brookfield. The company’s Strategic Debt Restructuring process is also underway, in which Anil Ambani’s flagship unit will not have to pay any loan until December. However, in the statement of the company, it has also been said that RCom will assess a substitute plan for its mobile business through its strategy based on its 4G and spectrum portfolio.