Aircel Cellular Ltd, a mobile telephony firm that is 74% owned by Malaysia’s Maxis Communications Bhd, is in merger talks with Idea Cellular Ltd, India’s fifth-largest mobile phone services firm, and Spice Telecom Ltd, which runs regional wireless networks in two states, for the formation of a single entity with a pan-Indian presence, industry executives close to the negotiations said.
India’s cellular landscape is dominated by companies having a contiguous presence across multiple states or “circles”.
Top phone firms Bharti Airtel Ltd, Reliance Communications Ltd and state-owned Bharat Sanchar Nigam Ltd enjoy benefits of scale, whileprocuring equipment and handsets and drive down costs of services.
Such benefits are denied to regional phone companies such as Spice Telecom, which counts under three million customers in Punjab and Karnataka; Reliance Telecom Ltd, a sister concern of Reliance Communications, which operates GSM networks in eight circles and has about 4.35 million subscribers; and Aircel, which offers mobile phone services in nine circles to nearly nine million customers.
Bharti Airtel, in comparison, has nearly 40 million customers countrywide and Reliance Communications, which uses CDMA—short for code division multiple access, a US cellular communications standard—networks, has some 30 million. Idea has nearly 15 million users in 11 states.
On Monday, one executive at Aircel confirmed the talks, but counterparts at Idea and Spice were non-committal on negotiations that other industry insiders confirmed. The senior Aircel executive spoke on the condition of anonymity and said it was too early to divulge details.
Another executive said “such talks have always been going on”, but declined to be drawn into specific details of the current state of discussions. This person, who too did not wish to be identified, added, “there are only so many mergers and acquisitions possible. Every month we get investment bankers making presentations to us on how much money we can save if we merge with someone else or buy them out. With Spice going for an IPO (initial public offering), there has been a higher number of such presentations,”
A board-level executive at Spice said there was “nothing definitive in the routine operational relationship talks we are having with Idea, Aircel or others.”
The company, controlled by the Delhi-based B.K. Modi group, was on course for an initial share sale later this month, this person said asking he not be named because of regulations in the stock market that prevent a firm registered for an IPO from being interviewed by the media.
Calls to Spice chairman and managing director Dilip Modi remained unanswered.
Reports of Spice and Idea discussing a merger surfaced soon after after stock market regulator, Securities and Exchange Board of India, gave its approval for the Modi company’s share sale.
Telekom Malaysia owns 49% of Spice and if the merger of the three telecom firms goes through, it will see itself sharing a growing business with rival Maxis.
Early last month, Maxis chairman Ananda Krishnan launched a bid to buy the remaining 53% of Maxis that he does not own from public shareholders and take the company private. The effort was widely seen as a bid to expand the company into fast-growing markets such as India after raising debt. India is the world’s fastest-growing market for cellphone services, adding about six million customers every month to its nearly 175 million user base.
Idea officials were tight-lipped, neither confirming nor denying the three-way merger. “Talks have been going on for more than four years now, but have been stuck due to the high price demanded by the Modis,” a senior Idea official said, also preferring not to be quoted.
Analysts said valuations would be the key to any possible union among the three companies. “In today’s industry scenario, the regional players are all eyeing each other,” said a senior telecom analyst with a Mumbai-based broker, asking he not be named.
“Everyone is in talks with every one else, but they have been getting stuck in the valuation.”