The merger of Reliance Communications (RCom), owned by Anil Ambani, and Aircel of Malaysia’s Maxis is the sign of the times to come. Consolidation in the fragmented telecom sector was expected for a while as it is difficult for smaller companies to survive in this tough, competitive climate. The entry of Reliance Jio, owned by Mukesh Ambani, who has deep pockets, made the consolidation inevitable. He is giving freebees which his competitors must match at the cost of trimming their balance sheets. Many have already announced some sops to retain their subscribers. While most depend on earnings from voice, Reliance Jio has heralded a free voice era and has cut down data costs. In most countries worldwide, voice is usually free, but in India voice was charged because of an understanding between the existing major players — a form of cartelisation.
Reliance Jio upset this applecart and, with porting permitted, a lot of subscribers are migrating to Reliance Jio. The Rcom-Aircel merger, while catapulting the new entity that will be created to fourth place in India’s telecom sector, is quite meaningless unless they can bring in funds for sustainability. Both parties have huge debts on the books and are in search of a third party to whom they can sell their stake and bring in funds. Several smaller players will have to take the same path to survive as it’s getting more expensive to set up networks, and the cost of spectrum through auctions is astronomical. It is a game of the survival of the fittest.
