16�THE ECONOMIC TIMES | NEW DELHI | FRIDAY | 24 JUNE 2016Companies: Pursuit of Profit

Kalyan.Parbat@timesgroup.com

Kolkata:Vodafone India and Idea Cel-lular are likely to be the most aggressi-ve buyers in the upcoming mega spec-trum sale and are tipped to collective-ly put in nearly $4.5 billion (.̀ 30,600crore) of bids to primarily corner 4Gairwaves as they lag way behind Bhar-ti Airtel and Reliance Jio Infocommon this score, said industry expertsand analysts.

Second-largest carrier Vodafone In-dia and No. 3 operator Idea Cellular areexpected to dish out roughly $3 billionand $1.5 billion, respectively, in maxi-mising data spectrum holdings in the1800 MHz and 2100 MHz bands, altho-ugh analysts suggest the British telcomay even cherry pick some 2300 MHzspectrum in the metro markets.

“Vodafone with 4G airwaves in only fi-

ve markets has a desperate need for da-ta spectrum before Jio launches com-mercially, and could emerge among thebiggest spenders in the next auction,”said an analyst of a leading global bro-kerage who did not wish to be named.

Idea has 4G spectrum in 10 circles,compared with pan-In-dia holdings for BhartiAirtel and Reliance JioInfocomm.

But industry expertsexpect the spectrum saleto garner a maximum $10billion to $12 billion,which would be less thana seventh of the $83 bil-lion that the governmentcan potentially earn if allairwaves on offer are soldat base price. On Wednes-day, the Union Cabinetapproved what will be In-

dia’s biggest spectrum sale likely in ear-ly September, in which the governmentplans to auction over 2200 MHz of airwa-ves across 4G bands (700 MHz, 800 MHz,1800 MHz, 2300 MHz and 2500 MHzbands), and the 2100 MHz 3G band.

Rajiv Sharma, telecom analyst atHSBC, said the government’s auctionproceeds target is ambitious and “ba-

sed on unrealistic expectations” as itexpects to raise a whopping $83 billion,which is 2.8 times the telecom sector’spresent revenues. More so, he said, sin-ce the industry is already reeling underan average net debt to Ebitda ratio of 4x.

Brokerage HSBC expects a lot of thespectrum to remain unsold since 70%of the planned auction receipts are pro-posed to be driven by take-up in the 700MHz band.

“None of the existing incumbent car-riers have the balance sheet to bid forpan-India 700 MHz spectrum at currentprices, and we believe a lot of 4G spec-trum might remain unsold in the 700MHz, 2300 MHz and 2500 MHz bands,”said Sharma. “We see good demand for1800 MHz, selective demand for 2100 and700,” he added. “Ecosystem for 700 MHzband from an Indian context could be atleast 3-4 years away.”

Analysts, however, aren’t ruling outthe chances of No. 1carrier, Bharti Air-tel spending a decent sum in selectivelybuying some 700 MHz spectrum in highsubscriber density markets such as Bi-har, Rajasthan, UP-East, UP-West andWest Bengal, especially since the baseprice of these premium 4G airwaves islower than that of 900 MHz spectrum insome of these circles.

Vodafone, Idea Likely to Put in$4.5 B of Bids for 4G SpectrumBoth telcos may emergeas biggest spenders in the next auction in a bidto capture 4G airwaves

VodafoneIndia andIdea Cellularare expectedto dish outroughly $3 billion &$1.5 billion,respectively

Our Bureau

New Delhi: Reliance Communica-tions (RCom) and the promoters ofAircel are set to ink a “binding defi-nitive” pact in around two weeks tomerge their wireless businesses,which would create a strong No. 4telco through India’s first suchpan-India deal.

“RCOM and Maxis Communica-tions Berhad (MCB) and Sindya Se-curities and Investments PrivateLimited (Sindya), the shareholdersof Aircel Limited (“Aircel”), expectto sign binding definitive docu-mentation and announce the pro-posed transaction for the combina-tion of the Indian wireless busi-ness of RCOM and Aircel veryshortly,” the Anil Ambani-ownedcarrier said on Thursday.

Meanwhile, sources said RCom’scustomers of its erstwhile CDMAservices will be able to start using 4Gservices shortly, starting with usersin Mumbai from July 1 under the

company’s spectrum sharing agree-ment with Reliance Jio Infocomm.Customers in Delhi, Kolkata, Guja-rat and Andhra Pradesh will gradu-ally follow in the first phase.

RCom’s stock rose sharply on themerger news, ending the day 4.2%higher at .̀ 49.70 on the Bombay StockExchange, outpacing a 0.9% rise inthe benchmark index.

“It’s a done deal. Just formal appro-vals are left to be tied up,” said a per-son familiar with the discussions.“The deal should close in the next sixto seven months.”

RCom will demerge its wireless bu-siness and merge it with the existingunlisted Aircel, with promoters ofboth sides owning 50% each in thenew entity. “RCom shareholders willreceive free listed shares in new com-bined wireless entity,” another per-son said.

The new entity will be rebrandedand remain unlisted initially. Pro-moters of both companies will haveequal board representation.

“The CEO and the top management

level will be decided in due coursebut it will be the best man for thejob,” the first person said. Currently,Gurdeep Singh is the chief executiveat RCom’s consumer business,which includes wireless, while Kai-zad Heerjee is the CEO at Aircel.

which operates under the MTSbrand in India, won’t have any boardrepresentation in the new entity.

The combined entity will need topay around .̀ 500 crore to the tele-com department to liberaliseRCom’s 2G airwaves in 14 circlesfor the balance five years till per-mit expiry in those service areas.Liberalise, in this context, meanspaying market-linked price to thegovernment for spectrum whichwasn't auctioned a pre-conditionfor any M&A, spectrum sharing ortrading deal.

Sources had told ET previouslythat once the synergies — estimatedat .̀ 2,500 crore annually — get fullypanned out post-merger, the plan isto bring on board another foreign in-vestor within a year who will infuse$500 million (.̀ 3,400 crore).

The RCom-Aircel deal would crea-te an entity with revenue of about.̀ 25,000 crore annually, earnings be-fore interest, taxes, depreciationand amortisation of about .̀ 6,000-.̀ 6,500 crore and an Ebitda margin

of 25%, with cash flows of around.̀ 3,000 crore a year to start with.Idea Cellular, at No. 3, posted FY15revenue of .̀ 35,967 crore on an Ebit-da of nearly .̀ 12,000 crore and anEbitda margin of 33.1%.

RCom-Aircel-MTS combined willhold around 19% of the total spec-trum in the country across of the4G bands of 800 MHz and 1800 MHzand 3G bands of 2100 MHz and 900MHz. It will have around a 180 mil-lion subscribers. This compareswith nearly 175 million for Idea,over 252 million for market leaderBharti Airtel and nearly 198 mil-lion for Vodafone India, as per sec-tor regulator data at April end.

“The combined entity will havearound 13% revenue market shareand will look to close down on Ideawhich has around 17%,” the firstperson said. RCom’s tower portfo-lio and its undersea cables arm Glo-bal Cloud XChange will be kept outof the ambit of the merger, and theprocess to monetise these assetsare on, sources said.

RCom and Aircel will each transfer.̀14,000 crore of their debt into it.RCom has a gross debt of .̀ 42,651cro-re while it is .̀ 23,436 crore for Aircel.Russia’s Sistema will hold 10% in thelisted RCom as per a parallel ongoingprocess but the Russian company,

RCom, Aircel Set to Sign Merger Deal SoonJOINING HANDS Reliance Comm will demerge its wireless business and merge it with the existing unlisted Aircel to create a strong No. 4 telco

Consolidation in Telecom SectorRCom and Aircel will have 50% each in the new entity and equal board representation

The new entity will be rebranded and remain unlisted initially

The combined entitywill need to pay around `500 crore to the DoT to liberalise RCom’s 2G airwaves

`25,000 CROREAnnual revenue

13%Revenue market share

After the merger, the new entity will have...

180 MILLIONTotal subscribers

Gulveen.Aulakh@timesgroup.com

New Delhi: Top Indian handsetmakers such as Micromax, Intexand Lava are taking decisive stepsto move beyond pure-play assem-bly of mobile phones locally, andare talking to key component ma-king partners in Asia to set upshop in the country.

India’s No. 1handset maker Micro-max Informatics is in talks withcomponent makers for assemblingdisplay panels locally, while its clo-

sest local competitor Intex Techno-logies is planning to begin assemb-ling printed circuit boards (PCB) atits upcoming Noida plant by the fo-urth quarter this year.

“We are talking to a few compo-nent manufacturers, who are veryinterested to come and put up the-ir factories in India, they can beChinese or Korean,” said RajeshAgarwal, co-founder of the No. 2smartphone player in the country.

The lowest hanging fruit for thecompany is display panel, that se-veral companies want to make inIndia, Agarwal said.

Micromax, Intex & Lava to StartAssembling Devices Locally

Patna: Union Minister RaviShankar Prasad on Thursdayclaimed that the call drop pro-blem was improving with va-rious telecom companies in-stalling 1.24 lakh towers to miti-gate the issue. — PTI

Call Drop ProblemImproving: Prasad