How a 2005 deal may scuttle Aircel-RCom merger

The mega merger between Reliance Communications and Aircel is at risk with the Supreme Court threatening to take away the latter’s spectrum if its Malaysian owner T Ananda Krishnan does not appear in court within two weeks.

Though the Supreme Court did not name Reliance Communications in its order on Friday, it restrained the transfer of Aircel’s 2G licences to any other telecom company.

According to market analysts, RCom can technically still use Aircel’s 3G spectrum and other airwaves bought through recent auctions, but it is unlikely that the merger will go through in such a piecemeal manner.

The bigger worry would be for Aircel as the apex court has said that it may restrain the operator from earning any revenue from 2G services. Most of Aircel’s existing revenues come from 2G and it may end up losing millions of subscribers if the Department of Telecom were to transfer the airwaves to another operator.

The merger deal was announced in September 2016 under which RCom and Aircel’s Malaysia-based promoters Maxis Communications Berhad will hold 50 per cent each in a newly created venture, with equal representation on the board. This would have created the country’s third-largest mobile operator by subscriber base enabling both RCom and Aircel to stay relevant in a highly competitive telecom market dominated by bigger players such as Reliance Jio and Airtel. But all this could come undone if Aircel’s Malaysian owner does not comply with the Supreme Court order. The court’s action comes after Ananda Krishnan refused to appear in court in a case related to a deal done in 2005.

“Reliance Communication and Aircel’s merger will be further delayed as the apex court of India has asked DoT to sell Aircel’s 2G spectrum, if management does not co-operate,” said an analyst at India Infoline

On December 30, 2005, a deal was announced under which a joint venture controlled by Maxis paid $1.08 billion to purchase the 100 per cent stake in Aircel, a mobile operator then owned by Chennai-based businessman C Sivasankaran.

However, Sivasankaran later alleged that the then Minister for IT and Communications, Dayanidhi Maran, coerced him into selling the stake to Ananda Krishnan. It was also alleged that Maxis made a quid pro quo investment in Sun Direct TV, owned by Dayanidhi’s brother, Kalanithi Maran.

However, sources close to RCom and Aircel said the court’s intervention will have no impact on the merger.

“In the RCom-Aircel merger, there is no transfer of assets from Aircel and no sale of spectrum to RCom. The order does not cover Aircel’s 3G spectrum and the liberalised airwaves in the 1800 MHz band. The premise of the order and direction to DoT is to ensure that Aircel’s value does not get diluted by spectrum sale. With RCom’s spectrum going into Aircel, value will only be enhanced. Therefore, no immediate impact on merger plans,” the source said.

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