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Update: RCOM and MTS merge; Acquires 9M customers & 850 Mhz spectrum

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Update: Telecom operator Reliance Communications announced the first consolidation in the telecom sector as it merged its operations with Sistema Shyam Teleservices Limited (SSTL) which operates as MTS in India. With this, the new entity will acquire 9 million of MTS’ customers and 800 / 850 MHz band spectrum. “This will extend the validity of RCOM’s spectrum in 800 / 850 MHz band in 8 important circles by a period of 12 years from 2021 till 2033,” the company added.

MTS will also hold 10% equity stake in Reliance Communications following the merger. Post  the deal, minority investors of SSTL will be given an option to exchange their shares in SSTL with the pro-rata RCOM shares held by SSTL.

“Prior to Closing of the Transaction, MTS intends to pay off its existing debt,” the statement added. Readers will remember that Reliance Communications had said that it would not be taking on any liabilities from MTS during the merger.

The closing of the transaction is expected in the second quarter of 2016 subject to corporate, regulatory and other approvals.

Also read: RCOM, MTS India merged entity will have third largest mobile Internet users base

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Earlier: Anil Ambani-led Reliance Communications informed the stock exchanges that its board of directors will be considering the merger of Sistema Shyam Teleservices (SSTL) today. Sistema, which operates as MTS in India, has been in advanced talks with Reliance Communications for a merger through a stock swap since June.

Gurdeep Singh, CEO of consumer business of Reliance Communications had said in an analysts’ call last quarter that the company will not be taking on any of MTS’ liabilities through the stock swap. “It’s a business merger, of the telecom business, of Sistema Shyam in India. We do not take on any liabilities whatsoever, but we take on the assets, we take the revenue and the customers and we also take the spectrum with us, which has got a residual life of little over 18 years, and it’s a liberalized spectrum,” Singh added.

A Business Standard report adds that Sistema would get a stake of 8-10% in the merged entity, while RCOM would hold controlling stake. The combined entity, with 118.64 million active mobile connections will be the fourth largest telco in the country, behind Airtel, Vodafone and Idea.

MTS India is currently operational in 9 circles, namely Delhi, Gujarat, Karnataka, Kerala, Kolkata, Rajasthan, Tamil Nadu, UP (West) and West Bengal, while RCOM is operational in 22 circles.

Net neutrality

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It needs to be pointed out that on Net Neutrality, Reliance Communications and MTS are at odds with each other and if it will come up for discussions in the board meeting. RCOM has tied up with Facebook to provide Free Basics, a zero-rating platform which violates Net Neutrality, while MTS has taken a pro Net Neutrality stance and has even introduced anti-zero rating data plans for its customers. MTS has also rolled out a training and awareness program on net neutrality which involves 40,000 of their retailers in all nine telecom circles where it operates.

Earlier this month, RCOM said that it has brought on board one million Indians to experience the Internet via Free Basics. However, it is unclear that the one million users of Free Basics are all first time users. Readers will remember that Facebook back in May had said that Internet.org had 800,000 users in India and that only 20% of those were first time new users.

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