Reliance Communications (RCOM) and the Indian telecom business of Sistema Shyam Teleservices Ltd (SSTL), MTS India, recently entered into discussions for a potential merger of the two companies through a stock swap. Assuming that the merger does go through, let’s take a look at where the combined entity stands in the Indian telecom industry at present:
– As of April 2015, MTS India has 8.84 million active mobile connections, while Reliance Communications has 109.8 million active mobile connections.
– The combined entity, with 118.64 million active mobile connections will be the fourth largest telco in the country, behind Airtel with 226 million active mobile connections, Vodafone with 184 million active mobile connections, and Idea with 161.4 million active mobile connections (pdf) (as of March 31, 2015).
Incidentally, even without the merger, RCOM is currently the fourth largest telco in India, in terms of active mobile connections.
Mobile Internet
The debate over net neutrality and the subsequent argument initiated by telcos regarding decline in revenue from traditional sources not compensating revenue from data services has meant that for every telco their mobile Internet customers have become vital. Where do RCOM and MTS India stand:
– MTS India reported it has a mobile subscriber base of 8.9 million for the quarter ended March 31, 2015 (Q4-Fy15), though it’s not clear how many of these are active mobile connections. It reported a blended mobile Average Revenue Per User (ARPU) of Rs 127.
– On the other hand, RCOM reported 33.7 million mobile Internet connections for Q4-FY15, and its ARPU stood at Rs 147 at the end of Q4-FY15.
– What’s particularly interesting is that RCOM’s 3G mobile Internet connections base has surpassed its 2G mobile Internet connections base, making it probably the only telecom operator in the country for which this has happened. RCOM reported a total 3G connection base of 17.4 million, higher than its 2G base of 16.3 million.
– With the merger, the combined mobile Internet connections will be 42.6 million, which would make it the third largest telco in the country, behind Vodafone with 64 million mobile Internet connections and Airtel with 46.39 million mobile Internet connections. Idea, with 33.4 million mobile Internet connections, will be at the fourth place.
Operations
– 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.
– Rajasthan, West Bengal and Karnataka circles, with 2.2 million, 1.7 million and 1.5 million customers respectively, are the three largest circles for MTS India.
– For the combined entity, the top 5 circles will be:
- Madhya Pradesh with 12.28 million subscribers (MTS isn’t currently operational in this circle). Idea Cellular is the market leader in this circle with 19.63 million subscribers.
- Delhi with 9.5 million subscribers (MTS currently has 1.02 million subscribers in this circle). Airtel is the market leader with 10.9 million subscribers.
- Bihar with 9.44 million subscribers (MTS isn’t currently operational in this circle). Airtel is the market leader with 25.17 million subscribers.
- Rajasthan with 8.89 million subscribers (MTS currently has 2.23 million subscribers in this circle). Airtel is the market leader with 17.81 million subscribers.
- West Bengal with 8.66 million subscribers (MTS currently has 1.72 million subscribers in this circle). Vodafone is the market leader with 15.23 million subscribers.
MTS’s Wi-Fi plans aligning with RCOM
MTS is currently looking to pivot its focus from being primarily a dongle driven data company to a Wi-Fi solutions provider, with the launch of its Homespot Instant WiFi solution. This opens up a possible potential strategic alignment between the two companies: both focus on mobile broadband. RCOM has been pitching itself as a company that focuses on Internet connectivity, which plays well with SSTL/MTS, which has done the same for a few years. MTS India had 1.8 million mobile data card subscribers at the end of Q4-FY15. It has data services in 850 towns across 9 circles, whereas RCOM offers services across India.
It’s worth noting that SSTL, which had made investments of Rs 496 million during Q1-FY15, had debt from banks and financial institutions worth Rs 35.87 billion at the end of Q4-FY15.
Financials
MTS India reported revenues of Rs 357.8 crore for Q1 2015, registering a 12% year-on-year (YoY) growth from Rs 318.8 crore in the same quarter last year. It reported a OIBDA loss of Rs 129.7 crore for the quarter, a decline of 33% YoY from Rs 97.5 crore loss in the same quarter last year. Non-voice revenues (data + mobile VAS) accounted for 51.1% of the telco’s total revenues.
Reliance Communications reported net revenues of Rs 3947.8 crore for Q4-FY15, marginally up from revenues of Rs 3852.6 crore in the previous quarter. The telco reported profits of Rs 1713.2 crore for the quarter, almost flat from the Rs 1705 crore profits reported in the previous quarter. Non-voice revenues (data + mobile VAS) accounted for 24.16% of the telco’s total revenues.
Note: The chart at the top has been edited for clarity.