Reliance Communications (RCom) and Aircel have called off talks to merge their mobile operations due to regulatory and legal hurdles.

This casts doubts over the operators’ future as the merger was seen as vital for their survival in the competitive telecom sector.

“Legal and regulatory uncertainties, and various interventions by vested interests, have caused inordinate delays in receipt of relevant approvals for the proposed transaction,” an RCom statement said.

“Unprecedented competitive intensity in the Indian telecom sector, together with fresh policy directives adversely impacting bank financing for this sector, have also seriously affected industry dynamics. As a result of the various factors aforesaid, the merger agreement has lapsed,” it added.

RCom and Aircel had signed binding agreements in September 2016 for the merger of Reliance’s mobile businesses with Aircel.

Tower deal under review For RCom, the merger was part of a plan to pare its ₹45,000-crore debt. Under this plan, post the merger with Aircel, Reliance was to sell 51 per cent stake in its tower assets to Brookfield for ₹11,000 crore. Without the Aircel deal, the tenancy ratio and the total number of towers will come down; the tower deal may therefore have to be renegotiated at a lower valuation. “With the merger off, one will have to see if Brookfield will go ahead with the stake buy and at what price,” said a telecom analyst. RCom had also put other assets, including real estate and optical fibre, on the block, but is yet to find buyers.

Loan to equity At its Annual General Meeting last week, RCom shareholders approved the issuance of equity shares to lenders by converting loans. The lenders had given RCom time till December to conclude the Aircel merger. With the deal now off, lenders can exercise their right to convert debt into equity and take control of 51 per cent stake in the company. However, RCom said the standstill on its debt will continue till December 2018.

Deal with RJio? Analysts tracking the telecom sector say there could be a possible back-channel deal between the Anil Ambani-backed RCom and RJio, backed by his brother Mukesh Ambani. RCom has 200 Mhz of spectrum across valuable bands that can be used by RJio.

RCom said it will evaluate an alternative plan for its mobile business, including monetisation of its spectrum assets through trading and sharing arrangements. “RCom has the advantage of capital light access to India’s most extensive world-class nationwide 4G mobile network through spectrum sharing and ICR Agreements with Reliance Jio.” the statement said.

Aircel in trouble For Aircel, one of the country’s oldest operators, the collapse of the deal portends an uncertain future. Analysts believe that Aircel, majority-owned by Malaysia’s Maxis Berhad, may struggle to stay competitive in a market dominated by large players such as Rjio and Airtel.